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Alberta economic snapshot for Sept. 15, 2012

EDMONTON, AB, Sep 15, 2012/ Troy Media/ – Many of Alberta’s economic indicators suggest a bit of softening moving into the second half of 2012, and yesterday morning’s data on the value of manufacturing shipments add to that chorus.

In July, total manufacturing shipments from the province were valued at $5.94 billion. That’s essentially unchanged from June, but down more than $600 million since November of last year. The figures are adjusted to account for seasonality.

Nationally, the figures were worse: total Canadian manufacturing fell by 1.5 per cent to $48.3 billion in July, the third decrease in five months. Declines in transportation equipment were largely responsible for the overall drop.

Alberta’s manufacturing sector is largely related to the energy industry. Most of the products are either inputs into oil and gas extraction (such as steel pipe, drill bits, and compressors) and oil sands mining (specialized transportation equipment), or they are outputs from the energy industry (refined petroleum products, plastics, and chemicals). Food processing such as meat packing also contributes to the overall manufacturing totals.

The slight decline and levelling off of shipments in July is consistent with the slowdown the province is experiencing that is captured through a series of indicators at the mid-point of 2012. Retail sales, employment, and housing starts all are moving either slightly lower or sideways. Much of this has to do with the moderation in energy prices through the first half of the year. However, with North American benchmark oil prices back up close to US$100, the slide in some of these indicators could be coming to an end.

Merchandise trade tanks

July’s merchandise trade deficit of $2.3 billion matches that of July 2010, the highest recorded since the recession hit. Fuelling that sudden dip was the reduction in the value of crude oil exports, which dropped $540 million in July, according to Statistics Canada.

The numbers appear to support the argument that crude is not the factor, or not the only factor, propelling the flight of the loonie (see more below in Commodities) Having large crude reserves helps instill confidence that Canada will generally be able to pay its bills, heightening investment demand for Canadian financial assets. Bu, demand for foreign currency has been dominating demand for loonies for purely trade-related reasons.

U.S. bonds

The Federal Reserve announced this week plans to restart a bond buying program, focusing on mortgage backed securities (MBS). And it extended to mid-2015 the time it expects interest rates to remain at near zero. With interest rates at record lows, the Fed has been reduced to using non-standard monetary policy, such as bond buying and committing to low interests for sustained periods, but Thursday’s announcement included a new approach: tying the size and length of the bond buying program to the labour market.

There isn’t a unanimous view on how effective the program will be in generating growth. By focusing on MBS, the Federal Reserve aims to support the housing industry, as it will target lowering the interest rate most closely tied to lending conditions in the industry. But, with interest rates already at near record low levels, how effective the program will be is debatable. Unless lenders unwind some of their tighter lending requirements.

Bias in the CPI?

Housing is the single largest expense any family typically makes. So, what can we make of the apparent fact that, while housing prices have increased rather quickly over the last couple of years, changes in home values seem to have only a modest influence on official inflation numbers as recorded in the Consumer Price Index (CPI)? Seems bizarre. A recent paper by the C.D. Howe Institute thinks so, too.

The institute is concerned mostly with the signal to keep interest rates down that low inflation gives to the Bank of Canada (BOC). Currently, the CPI measures the housing component of inflation on a user-cost approach, which approximates the price the typical residence could rent for. Rising home prices, combined with lower interest rates, will then actually smooth out the monthly housing cost in the CPI. The institute recommends an index be developed and maintained that takes into account changes in the purchase price.

Production capacity tightening

Statistics Canada announced this week that capacity utilization continued to increase through the second quarter of 2012, hitting 81 per cent. The ratio gives an indication of just how busy business is in Canada, defined as measured output relative to estimated production capacity.

One of the reasons BOC Governor Mark Carney continues to stress that some tightening of monetary policy might be necessary is this increasing capacity utilization rate. This is because prices tend to rise when there isn’t a buffer to allow production to accommodate higher demand.


Carney was at Spruce Meadows in Calgary recently, participating in a roundtable discussion on Dutch Disease. The term summarizes the argument that high commodity prices cause the currency value to increase to such an extent that manufacturing becomes uncompetitive.

Carney used the occasion to state categorically that higher commodity prices are a benefit to Canada and that higher commodity prices are responsible only for about half the rise in the exchange rate over the past decade.

The fact that manufacturing across the developed world has been in a secular decline for years also weakens the argument that Canadian manufacturing is suffering uniquely from Dutch Disease.

(Editor’s note – Read: Loonie has nothing to do with Ontario’s manufacturing malaise and What U.S. and Asian manufacturing tell us about Canada’s manufacturing woes and our series Oil and gas wealth benefits all of Canada)


After the summer of discontent in Montreal over tuition fees, this week’s release from Statistics Canada on average tuition across the nation is particularly interesting. Alberta ranks in the middle of the pack, nationally, at an average tuition of $5,883. By far the most expensive province to pursue post-secondary education is Ontario, at an average tuition of $7,180. Newfoundland and Labrador and Quebec were significant outliers, at $2,649 and $2,774 respectively.





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