June 30, 2012
CALGARY, AB, Jun 30, 2012/ Troy Media/ – Canada’s economy has been growing in fits and starts over the past several years with some months expanding and some contracting. But the second quarter of 2012 got off to a good start with a healthy expansion in April.
According to Statistics Canada, real gross domestic product grew 0.3 per cent in April, after edging up 0.1 per cent in March and shrinking in February by 0.2 per cent. Growth in April surpassed the expectations of a consensus forecast of economists who called for an expansion of 0.2 per cent.
Most of April’s increase was due to mining and oil and gas extraction and, to a lesser extent, wholesale trade. The majority of Canada’s oil and gas industry is concentrated in Alberta, suggesting that this province’s economy continues to be a growth leader for the country.
Nationally, transportation services, agriculture, forestry and fishing contributed to the overall gain. Retail trade, manufacturing, accommodation and food services and the public sector (education, health, and public administration combined) declined.
Given the fragility of the global economy in the second quarter of 2012, the growth experienced in April is encouraging. Nonetheless, the Bank of Canada is unlikely to consider today’s GDP data as a reason to move more quickly on increases to interest rates. With inflation figures still dormant (1.2 per cent in May) and increased worry over Europe, the Canadian economy is likely to continue its zigzag growth pattern in the coming months.
Alberta wages still climbing
A big part of improving living standards is seeing wages rise faster than inflation. Fortunately, most of the time this is the case. But for much of 2011 the gap between the two was slim and in April 2012 the gap appears to be widening again.
Average weekly wages in Alberta hit $1067, which is 3.5 per cent higher than a year ago. This is 19 per cent higher than the national average of $897. The gap has been widening, due to the fact that the labour market hasn’t been nearly as tight nationally as in Alberta.
It’s only possible for household spending to sustainably keep rising (a huge driver of economic growth in any jurisdiction) if wages and job numbers keep pace.
Was some of the spring job surge an illusion?
The Bank of Canada indicated in the spring that it was considering raising interest rates to help keep inflation in check. One of the factors driving this was the surge in employment rolls. But now there’s reason to believe those numbers were slightly over-optimistic. If so, that’s just one more reason to believe no move will be taken on interest rates anytime soon.
Why might the employment numbers have been overestimated? There are two ways Canada tracks employment and wage trends in our country. One is by surveying households. The second is through an industry survey of employers. The household survey garners more attention because it comes out about a month earlier.
The numbers from the two sources will never be equal, but there’s reason to believe the large gains seen in the household numbers might be over stated. February and March month over month employment numbers, according to the household survey, increased 82,000 and 58,000, but the data from the industry side show industry employment improved only 6,000 and 41,000 over the period.
Evolving payment system
In an interesting report, the CD Howe Institute is advocating for a major change in how Canadians make electronic transactions. Currently, debit payments are structured as a co-operative and the CD Howe Institute is pressing for this to be changed so that more networks can be set up on a for-profit basis.
U.S. housing market showing signs of life
More encouraging data came out this week about the American housing market. New home sales for May jumped 7.6 per cent over last year to 369,000. The Commerce department also added that sales in March had been under-estimated by 15,000 units. We also learned that resale housing prices were on the rise in April, with the Case-Shiller Index rising 0.7 per cent over the previous month. And the National Association of Realtors reported that pending home sales in May climbed 5.9 per cent which was 13.3 per cent higher than a year ago.
The recently reported numbers on the housing market are the healthiest since the expiration of U.S. government tax incentives in mid-2010. It’s still possible the numbers represent a false start, but after six years of recovery there is a fair bit of demand built up, increasing the odds that the worst is behind us.
Aside from housing market news, data was also released on consumer confidence and durable goods orders. Household confidence appears to be taking a bit of a hit, dipping to an index value of 62 in June from 64.4 in May. This indicator is closely watched because of its correlation with consumer spending. Conversely, the durable goods report came in better than expected, rising 1.1 per cent in May – indicating that businesses are continuing to invest.
What has to happen for $60/bbl?
What will happen to crude oil prices over the next couple decades? It’s a huge issue for Alberta, where billions are being invested on the assumption that crude prices will remain elevated well into the future. This is why the 2012 Annual Economic Outlook by the Energy Information Administration (EIA), along with its various scenarios, is of particular interest to Alberta.
The low case scenario forecast of crude oil prices is of note. Under the low case, the price of crude dips to just below $60/bbl and remains there for a couple years. The key assumption that leads to this result is a lower growth rate than currently expected in emerging markets (which is assumed to increase at 3.5 per cent annually – which is 1.5 per cent lower than the base case scenario). Also, the scenario assumes OPEC has a limited ability to control prices largely because their share of crude output is lowered.
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