We don’t want to set off the fireworks yet to celebrate the fact that the Alberta economy is in full recovery mode. However, a number of key indicators clearly suggest that the Wild Rose Province’s economic prognosis is markedly better than it was just six months ago.
Given that oil and gas are the life blood of Alberta's economy (energy accounts for approximately 25%–30% of provincial GDP), it is not surprising that this improvement in the province's economic health is being fuelled, literally, by the very gradual increase in energy prices which started early in 2016.
The most visible impact of higher energy prices on the Alberta economy is on its total exports. After trending down since the final quarter of 2014, they posted a gain of 8.6% in the final quarter of 2016 due almost entirely to a very solid year-over-year rise in energy exports, almost all of which were destined for the United States.
While energy production is not particularly labour intensive, employment in Alberta's resource sector has increased by 12,500 jobs since July of 2016 and is the major contributor to the 17,900 increase in total employment over this period.
Another contributor to the pickup in Alberta's economic prospects is the federal government's recent (somewhat belated) approval of the Kinder Morgan Trans Mountain pipeline and Enbridge Inc's plan to replace its Line 3 oil pipeline which currently runs from Hardisty Alberta to Superior Wisconsin.
According to the Conference Board in Canada, the announcement of these pipeline approvals helped drive consumer confidence in the province to a nineteen-month high despite the fact that unemployment in the province was close to a twenty-year high.
Although Albertans' confidence cooled somewhat in January, their expectations about future employment prospects exhibited a very strong gain in line with the improved investment outlook among commodity-linked businesses, as noted in the Bank of Canada's Winter Business Outlook Survey.
The downtrend in retail sales through November suggests that Alberta's consumers stayed on the sidelines throughout 2016. However, the recent improvement in hiring and the concomitant improvement in consumer confidence suggest they will begin to make a positive contribution to growth early this year.
Having said this, the fact that existing home sales have posted year-over-year gains in October and November of 2016 and that there is evidence of a shrinking supply of homes for sale suggests that the combination of record low interest rates, improved affordability due to lower house prices, and firming consumer confidence are contributing to a strengthening in housing demand.
However, given that the months' supply of homes for sale is still very high and the volume of residential building permits issued in 2016 was down by 32.5% year-over-year, we expect new residential construction to remain in the doldrums well into the second half of this year.
Given the recent uptrend in energy prices, the go-ahead for two pipelines and the BoC's more upbeat take on energy investment, we expect capital spending in Alberta to increase slightly in 2017 after posting back-to-back declines of 23.4% and 11.9% in 2015 and 2016 respectively. Major projects which should contribute to this strengthening in capital spending in 2017 and 2018 are highlighted in Daily Commercial News' Top Ten Major Upcoming Construction Projects.