Boom and gloom.
For decades, Alberta has been known as the province that takes off like a rocket ship when oil prices rise sharply, and then falls back to earth when crude markets drop.
Today, the province has entered a different era, one where the economy is growing moderately as oil prices climb higher.
Yet, pessimism from the last collapse lingers on, oilpatch investment remains stagnant, and there are still signs of weakness in certain segments of the economy, more than a year after the recession ended.
“Moving into summer 2018, there is a disconnect between the sentiment in the province, which seems discouraged and the economic indicators, which are generally more upbeat,” says a new economic outlook report by ATB Financial.
This disconnect can best be seen in the province’s energy sector.
Benchmark U.S. oil prices have shot up by almost 20 per cent this year, closing at US$72.20 a barrel on Tuesday.
Prices for Western Canadian Select heavy oil have also increased, while the discount facing it has narrowed in recent weeks.
Despite these positive forces, energy investment is flat and pipeline concerns are “hampering optimism in Alberta’s energy sector,” the report states.
Last year, Alberta’s economy led the country with 4.9 per cent growth and it’s set to expand by another 2.7 per cent in 2018, led higher by non-energy sectors, according to ATB Financial.
But the provincial unemployment rate increased to 6.7 per cent in April, the highest level seen outside the Atlantic provinces. In Calgary, the unemployment rate sat at 8.0 per cent last month.
There have been significant improvements over the past year, with 13,000 new jobs reported in manufacturing and 11,200 in the oil and gas sector. At the same time, employment in wholesale and retail trade shrank by 5,800, while 2,500 jobs disappeared in the accommodations and food area.
ATB’s incoming CEO Curtis Stange believes the overall economy is strengthening, although there are areas of weakness, such as the high vacancy rates seen in office buildings in downtown Calgary.
“While we haven’t bounced back to some of the highs we saw pre-2014, overall the consumers and the business sentiment is relatively positive. But again, it’s a bit selective. There are pockets of oil and gas and oilfield services that are still feeling the impact of the downturn,” Stange said Tuesday.
“Some of the disconnect perhaps is the fact some of the higher-paying jobs associated with a high-growth energy sector have not returned.”
For a geologist or an oilfield service sector worker still hunting for a job, the lack of oil and gas investment remains a very real problem.
The boom days of 2013 and 2014 have not returned. Companies have become increasingly efficient, producing more oil and natural gas with fewer workers and less capital spending.
It is easy to focus on the negatives, given the rarefied heights Alberta was enjoying just five years ago and the depths of the fall during the recession.
But overall employment increased by 23,100 in the province last year, according to Statistics Canada. Wages were up 4.3 per cent in February compared with a year earlier.
Areas such as transportation and logistics, tourism and agricultural are all expected to have a solid year in 2018.
Manufacturing and wholesale trade are also moving upward, while population growth is returning.
After two years of seeing more people leave Alberta for other parts of Canada, the trend has reversed since the middle of 2017. Alberta should see net interprovincial inflows of about 2,000 people this year, the report states.
“Most of Alberta’s economy is doing well and growing strongly,” said economist Trevor Tombe at the University of Calgary.
“Where there are weaknesses are in very narrow pockets. In particular, young men with lower levels of education aren’t seeing their employment rising at all.”
Non-residential construction was also down almost eight per cent in March from a year ago, and real estate sales in the province are being impacted by higher interest rates and tougher Canadian lending rules.
For example, Calgary housing sales dropped by 20 per cent in April.
“People are used to the boom and bust cycles and even though oil prices are higher … you have to start to see it translate into employment growth,” said Ann-Marie Lurie, chief economist with the Calgary Real Estate Board.
“It’s just not reflecting yet in employment, as far as we can see in our numbers.”
Finally, there is an unresolved pipeline problem looming over the economy.
As the fight over the Trans Mountain expansion project continues, the ATB report notes “pipeline uncertainties are holding back investment and muting optimism” in the sector.
Large producers such as Suncor Energy have warned recently they won’t approve major new oilsands investment until the country sorts out its market access mess.
“Even with stronger energy prices that we’re seeing today, the energy sector is not where it should be when oil is at $72 a barrel,” said ATB Financial chief economist Todd Hirsch.
“We are not seeing a response in energy investment, and that’s really what drives growth.”
After contracting by almost eight per cent during the recession, Alberta’s economy is firmly on the comeback trail.
It is evolving, slowly moving in the right direction.
But without another boom, it will take a while longer for all of the gloom to lift.
Chris Varcoe is a Calgary Herald columnist.
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