By Nizam Shajani, CPA, CA, MBA, Partner
Alberta is still in the initial stages of its recovery form the recession, however overall numbers are looking positive. Unemployment is relatively high, however has decreased from the prior year – with industries seeing rebounds throughout. However, government measures seem to be in place to slow down the recovery. The recent two interest rate increases by the Bank of Canada are likely to have a pullback affect on investment and prices – and the proposed tax changes by the federal government are likely to hurt small and medium sized businesses, or at least give them pause for concern. The increased minimum wage imposed by the provincial government will also cut into corporate profits – with the government gamble this will translate into higher revenues for those companies with a larger population base to afford their goods.
Unemployment in Alberta is on a decreasing trend with more jobs available indicating a cautious recovery. Employment in Alberta increased by 1.5% from August 2016 to August 2017, or by 33,500 new jobs year over year with 2.286 million people employed in Alberta. Alberta continues to lag the national employment increase which was 2.1% over the same period. Full time employment in Alberta increased by 1.7% while part time employment increased by 0.4. Job vacancies increased by 30.8% from June 2016 through June 2017 with 34,000 vacancies – higher than the Canadian increase of 24.7% during that same time frame. The unemployment rate is at 8.1% in Alberta as at August 2017 – a decrease from the 8.5% unemployment in August 2016, however an increase from the 7.8% a month earlier. The national unemployment rate is at 6.2%. Employment insurance recipients decreased 33.5% in July 2017 compared to July 2016 to 71,460 people on EI in Alberta. The national decrease in EI recipients was 8.7%.
Earnings not keeping up with cost increases. As at July 2017 the average weekly earnings in Alberta continues to be the highest provincial average in Canada at $1,118 indicating a slight increase of 0.2% from a year earlier – with a national average of $967 which is up 1.6%. However, this has decreased from $1,176.40 back in February 2015. The new minimum wage numbers in Alberta also increased as of October 1st to $13.60 from $12.20 – the $1.40 increase representing an 11.5% increase to the minimum wage with an additional increase set for one year later of 10.3 % to $15.00. It wold be interesting to see if this pulls the Alberta average wage down as businesses are unable to afford the price increase or if there is an upward pull as employees ask for raises. In either case, small and medium sized businesses will need to brace for the change.
At the same time, the consumer price index indicates Albertans paid 1.1% more in August 2017 for goods and services than in the same month a year ago (the national increase was 1.4%). Note average wage increases are not keeping up with the consumer price index increase. The largest price increase was for energy (up 5.0%, while food and household operations prices declined (by 0.1% each).
Sales revenues for small and medium sized businesses see a cautious rebound. Shajani LLP Chartered Professional Accountants discussions with small and medium sized business owners note they are seeing increases from prior year earnings – however things are not as good as two or three years earlier. The number of businesses incorporated in Alberta from September 2016 to August 2017 was 3,443, an increase of 9.2% from the same period a year earlier while the Canadian Federation of Independent Business reports Alberta small business confidence remains flat as at September 2017. Their reporting notes Alberta’s confidence at 57.5 (slightly higher than the national confidence rating at 56.9) where 21% of respondents are looking to cut back on staffing verses 17% who are looking to hire – and 33% see their firms in bad shape while 22% are positive. Major cost constraints include tax and regulatory costs, fuel energy and wages whereas limitations on sales were topped by insufficient domestic demand.
Retail trade for the year ending July 2017 increased by 9.5% (led by motor vehicles and parts up 19.7% and electronics and appliances up 17.5% - furniture and home furnishings declined by 10.2%). Nationally retail trade increased by 7.8%. Wholesale trade increased by 16.3% in the same period with the national increase at 10.0%. Manufacturing sales also increased in Alberta in July 2017, compared to July 2016 with a 9.7% increase compared to the national average of 3.4%. Machinery saw the highest growth with an impressive 98.8% increase. Merchandise exports increased by 23.8% in July 2017 compared to July 2016, beating the national average of a 3.9% increase.
The energy industry is getting some life back. The active drilling rigs in Alberta have more than doubled with a 103.4% increase in July 2017 compared to July 2016 with 120 active drilling rigs with an average of 27.8% of available rigs active in Alberta. 403 wells were drilled in July 2017 compared to 165 wells drilled in July 2016, an increase of 144.2% and 2,734 wells have been drilled from January to July 2017 – an increase of 136.7% from the same period a year earlier. Oil production has also increased by 23.9% to 14.3 million cubic meters as at June 2017 on a year to year basis (noting the wildfires a year earlier impacted production) with growth focused on non-conventional oil. West Texas Intermediate (WTI) prices are up 7.3% in August 2017 compared to August 2016 at $US48.06/bbl and Western Canada Select is up 24.6% during the same period to $US38.50. Natural gas prices are up 0.5% to $1.83 in July 2017 (compared to July 2016) and natural gas production has also increased by 5.8% as of June 2017 compared to June 2016 – with a 1.1% increase in the first six month of the year.
Real estate and vehicle sales are rebounding from the downturn. The value of homes sold in Alberta increased 7.8% in August 2017 compared to August 2016 while nationally home sales were down 6.7% (largely due to the Ontario decline of 24.4%). Housing starts in Alberta are also up 33.4% in August compared to a year earlier (up 22.3% nationally), although building permits declined by 9.0% in July 2017 compared to July 2016 and down 2.8% for the first seven months of the year.
Motor vehicle sales are also on the upward trend, increasing 14.3% from July 2016 to July 2017 – with sales of trucks, including minivans, SUVs, trucks and buses leading the way.
Softwood and hardwood lumber production has increased by 1.9% in Alberta between July 2016 to July 2017 with shipments increasing 0.8% - while shipments nationally are down 0.8%. Grain deliveries increased by 34.3% between August 2016 and August 2017 while cattle prices have declined by 1.8% in July 2017 compared to the same time period a year earlier to 136.89 per hundredweight. Farm cash receipts are at an all time high of $4.1 billion in the first quarter of 2017 – an increase of 3.8% compared to the same quarter a year earlier – lead by crop receipts with a 7.1% increase compared to a 1.6% decline in livestock receipts.
Alberta saw a population increase of 1.2% to 4,286,134 in the third quarter – in line with the national growth rate of 1.2% over the same period. However net migration had declined in Alberta with 5,486 people moving into the province in the second quarter of 2017 compared to 6,713 moving into the province in the second quarter of 2016.
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