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August 11, 2012
CALGARY, AB, Aug 11, 2012/ Troy Media/ – Economists are looking for a bit of good news from the labour force survey as they head off to the lake or campground this weekend. But the news is split – positive in Alberta – but negative almost everywhere else.
Nationally, the Canadian economy shed 30,400 jobs, which is far worse than the consensus expectation of economists for a gain of 8,000 jobs. It’s another sign that a troubled global economy is weighing heavily on Canada.
Alberta, however, moved in the opposite direction. The job market in this province added 5,800 new positions in July, undoing some of the 8,600 jobs that were lost in June. Over the first seven months of 2012, total employment in Alberta is higher by 3.2 per cent – solidly above the gain of 1.0 per cent for the comparable time periods in Canada overall.
Alberta’s unemployment rate is holding steady at 4.6 per cent, the lowest in the country, and well below the national rate which skipped a tenth of a point higher to 7.3 per cent.
Even better for Alberta: the added jobs are all full-time positions. In fact, a total of 15,300 full-time jobs were created, which was only partially offset with a loss of 9,600 part-time jobs. Compared to a year ago, a significant number of jobs have been created in construction (+27,700), oil and gas (+24,700) and transportation and warehousing (+11,800). The only sectors with notable job losses are information, culture and recreation (-17,400) and wholesale and retail trade (-10,300).
While Alberta is bucking the global and national trend, the economic momentum in the province has slowed going into the second half of 2012. Jobs were added in July, but the pace of new job creation has tapered off from the breakneck speed of last year. This apparent moderating of the economy is actually a good thing. An overheating economy can cause problems and imbalances – especially labour shortages and spiralling wage costs for employers.
In the past, large merchandise trade surpluses offset Canada’s trade deficit in services. That’s no longer the case. Statistics Canada is reporting that Canada’s merchandise trade deficit hit $1.8 billion in June, the largest monthly deficit in two years. In fact, Canada hasn’t been in this position (where it has sold more to the rest of the world than it has purchased) since the third quarter of 2008.
If currencies were only traded to conduct trade in goods and services, the current pattern would suggest fairly strong depreciation pressure on the Canadian dollar. We’re not seeing that happening because investors need Canadian dollars to purchase Canadian denominated bonds and financial securities.
Speaking this week to media, Bank of Canada Governor Marc Carney highlighted that Canada is gaining the status of a safe-haven since the sovereign debt crisis began. Carney went on to add that, while this is likely putting upward pressure on the dollar, it can also provide an opportunity to Canadian businesses, as it lowers funding costs.
While Canada’s trade merchandise trade deficit widened in July, the Commerce department released data showing that the American trade deficit narrowed for the third straight month – hitting $42.9 billion in June. This is the smallest trade deficit since December of 2011.
The United States has recorded persistent trade deficits since the 1980s but they were particularly acute in the mid-2000s, peaking at 6 per cent of GDP. Currently the U.S. trade deficit is back to the three per cent range, which is a substantial improvement. But it still has a way to go.
Canada, on the other hand, was running overall trade surpluses of 1-2 per cent of GDP through much of the past decade but it has been in the 3 per cent range since the recession hit.
Not only did Marc Carney state this week that he would like to see a rebalancing of investment away from residential real estate and towards business investment, but the CD Howe Institute also published a paper on the same topic.
The CD Howe paper suggests there are policies that may be hindering the incentive of companies to invest in more machinery, tools and factories. The author writes that this may be due to some industries being overly protected from competition, that tax policies (such as scrapping the H.S.T in B.C.) may be a factor and that other initiatives (such as government backing of mortgage insurance and property taxes being higher for non-residential properties) ensure financing is easier to find for real-estate projects.
More data is coming in that is indicating Canada’s housing market is beginning to lose at least some of its allure. Nationally, the Canada Mortgage and Housing Corporation (CMHC) reported July housing starts of 208,500 units, down from 222,100 in June. It isn’t a large drop but it’s likely the full impact of the slowing resale market has been digested.
In Alberta, housing starts dipped down to 31,500 from 33,900 in July. However, overall activity in 2012 is substantially higher than in 2011 (when housing starts totalled 22,500). Alberta’s housing activity is being driven higher due to a robust local economy and a jump in in-migration through the first half of 2012. If these trends persist, Alberta should be buffered against a sharper contraction in housing activity that may occur in other provinces, such as British Columbia and Ontario.
The cost of alternate energy
In the mid-2000s, American lawmakers mandated renewable fuel targets which essentially required refineries to blend ethanol with crude when producing gasoline.
Ethanol is largely produced from corn, the price of which is shooting to record levels due to concerns over this year’s harvest. As a result, the percentage of each year’s corn crop being used for ethanol production has gone from 5 per cent at the turn of the century to current levels of 40 per cent.
Ethanol mandates are becoming political with many politicians calling for a suspension of the ethanol mandate. If the mandate is waived it is hard to predict what the overall impact could be as the market has experienced many changes.
At the beginning of the year, direct subsidies to refiners for ethanol production were eliminated and refiners were permitted to import ethanol without paying a hefty tariff (in Brazil, it is mostly produced from sugar canes). Refiners may not completely give up ethanol, even if permitted to do so, as a new equilibrium would have to be found between what it costs for crude and other alternatives.
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