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June 16, 2012
CALGARY, AB, Jun 16, 2012/ Troy Media/ – Talk to just about anyone in Alberta these days about the economy and you’re likely to get the same answer: the boom is back. But flying in the face of that assessment is new data from the manufacturing sector released yesterday morning. Factory floors and refineries were just a bit quieter in April – and indeed, over the past few months.
In April, total manufacturing shipments edged lower to $6.27 billion in the province, down 1.9 per cent from the previous month, and lower by almost 5 per cent from its recent high last November.
Nationally, manufacturing also slid backward in April, down 0.8 per cent from March to $49.1 billion. Statistics Canada reports that the aerospace product and parts industry, along with the petroleum and coal product industry, posted the largest decreases. Sales fell in 13 of 21 industries tracked by Statistics Canada.
Alberta’s softer manufacturing shipments were concentrated in petroleum refining, chemical production, and wood and lumber milling, all of which showed declines in April. The paper and food processing industries provided some offsets with rising shipments. In fact, Alberta food processing (which is dominated by meat packaging) reached its second highest point ever.
The modest slump over the past few months should not be taken as a sign of a slowing economy. Other reasons for the declines could be refinery shut-downs for maintenance, a pause due to higher inventories, or even a lack of available workers. If the manufacturer is unable to hire people because of labour shortages, it could result in lower levels of factory production – even if that means lost opportunities for the company.
Nationally the New Housing Price Index (NHPI) increased 0.2 per cent in April over March. On a yearly basis new houses are selling for 2.5 per cent more. The growth is mostly due to Toronto’s hot housing market which is up 5.9 per cent year over year.
In Alberta’s two major cities, Edmonton and Calgary, the NHPI has been relatively flat for a while. Relative to last year, Edmonton prices have increased slightly more than Calgary’s; with the NHPI index increasing 1.2 per cent in the provincial capital versus 0.9 per cent in the business capital.
It should be stated that seeing large jumps in the NHPI Index is the exception, not the rule. For instance, between 1986 and 2006, the years leading up to the boom, the monthly year-over-year average increase in the NHPI for Alberta was only 3.9 per cent.
American economic data uninspiring
There were a couple of major U.S. data releases this week, none of which reported particularly good news. On the employment front, state unemployment benefit claims inched higher during the first week of June, rising by 6,000 to 386,000. The number of individuals claiming benefits is considered a leading indicator – showing what the pace of hiring or firing is in the labour market well before official monthly employment figures are released.
Rising crude oil prices influenced the three other major data releases this week. The price of crude was high in the first quarter, pushing up the value of imports, but it declined sharply by the middle of May, with the lower prices reducing total spending and inflation. Retail sales came in 2 per cent lower and inflation was 0.3 per cent lower in May relative to April and the U.S. current account deficit (i.e. America’s running balance with the rest of the world) jumped 15.7 per cent in the first quarter of 2012.
According to Statistics Canada, Alberta’s farmers became wealthier in 2011, with total equity improving to $92.3 billion in 2011 over $87.8 in 2010. There were a couple reasons for the increase: breeding livestock increased by $800 million and the value of farmland increased by $3 billion. This year will likely prove to be even better as livestock and crop prices have been very good in the first half of 2012.
Bank of Canada’s EU warning
In the Bank of Canada’s June Financial System Review, the central bank went to lengths to highlight the risk that Europe’s sovereign debt crisis poses to Canada’s financial system. While Canadian banks aren’t directly exposed to much of the sovereign debt of the troubled nations, the fear is that the system could be hit through contagion – such as exposure to other entities that are themselves more directly impacted. Compounding the risk is the precariousness of Canadian households given the oft mentioned elevated household debt levels.
OECD sees a touch of Dutch disease
According to the Organisation for Economic Co-operation and Development’s (OECD) June’s economic survey of Canada, there is evidence of Dutch disease in our country. Dutch disease refers to a situation in which a surging commodity market bids up not just the value of the local currency, but also other local input costs, such as labour, to a point where other industries – manufacturing in particular – become uncompetitive. The OECD highlights that, by 2011, manufacturing’s share of value added had shrunk to 12.6 per cent of GDP, from 18.6 per cent in 2000. While the downward trend was also observed in the United States, it was much more pronounced in Canada, which the author partially attributes to the strengthening of the dollar.
Overall the OECD had a pretty rosy assessment of the Canadian economy and expects the Canadian economy to expand moderately, at 2.6 per cent next year, based mostly off of higher investment spending by business and another strong year of consumer spending. That said, the international institution does see risk on the horizon in the form of household debt and a troubling track record when it comes to productivity.
One of the good news stories in 2011 was the resurgence of demand for new vehicles, both in Canada and in the United States. According to Statistics Canada, the pace of new auto and light truck sales have declined somewhat in 2012. According to the agency, sales were flat, year over year, but sales in Alberta increased slightly, by 1.1 per cent.
It may not be a surprise, but the sale of new trucks in Alberta is now past pre-recession levels. Trucks make up about 75 per cent of all new vehicle sales in Alberta. Naturally, the demand for trucks in Alberta will be skewed because of higher corporate fleet demand and the fact that trucks are viewed as a necessity by many trades people.
| ATB Financial
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