In this week’s ATB Economics Weekly Wrap…

• November Gain - Alberta employment back on track
• Closing the gap - job vacancy rate now higher in Alberta
• Green light - Dow pulls trigger on major net zero project
• Bumpy and soft - Canada’s GDP dips in Q3
• Businesses less optimistic than in June
• Interesting Fact: ‘The Last of Us’ becomes largest series filmed in Canada
• Chart of the Week: Investment and productivity - Canada could use more of both

The job report headlines this edition of the Wrap. The Alberta labour market is holding its own amid a broader slowdown in the Canadian economy. Meanwhile, Dow announced its final decision to proceed on a major net zero project in Fort Saskatchewan, Alberta.

Canadian labour market continues to cool

Canada’s labour market continued its softening trend last month. The unemployment rate climbed to its highest since January 2022 and job growth was modest. This combined with a Q3 GDP contraction should keep the Bank of Canada on hold next week.

Canadian employment registered a modest 25,000 gain and the unemployment rate rose to 5.8% amid strong labour force and population trends. That puts the unemployment rate 0.8 points above this year’s low of 5.0% in April. Employment growth came in just above the Bloomberg consensus (+15,000) while unemployment was as expected.

One nagging concern for the Bank of Canada is high wage growth, which the Bank regularly cites as inconsistent with its 2% inflation target. Among permanent employees, wage growth remained strong at 5% year-over-year last month. We maintain that a rising unemployment rate and falling job vacancies should ease wage pressures going forward.

Job vacancy rate - now higher in Alberta

Alberta has inched  itself closer to the national average on two measures of labour market ‘tightness’—the job vacancy rate and the unemployment rate. Unemployment is still a tad higher, but the job vacancy rate (vacancies as a share of jobs required) has nudged above the national rate for the second straight month.

This is noteworthy, as the province has been lagging on both metrics since its 2015-2016 recession. We see this as another sign that Alberta’s labour market, and the economy in general, are holding up relatively well in the higher inflation and interest rate environment.

Dow reaches final investment decision on Path2Zero project

We normally don’t talk about specific projects, but this one is big‒really big. Dow’s Path2Zero petrochemical project in Fort Saskatchewan, Alberta received the green light from its Board of Directors on Tuesday. The cost, excluding government supports and investments from partner companies, is $8.9 billion (US$6.5 billion). Construction is expected to start next year with a completion date of phase one in 2027 and phase two in 2029.

The company estimates peak jobs of 7,000-8,000 during the construction period. Our modeling produces similar results: a 6,000-9,000 lift to Alberta employment and a 0.3-0.4% boost in annual real GDP during construction. Post construction, the project will add to Alberta’s production and exports.

The company cited a number of factors to locate in Fort Saskatchewan, including cost-competitive natural gas and ethane feedstock, carbon storage infrastructure and transportation, a ‘high class’ workforce, and government incentives.

The last big petchem project in Alberta was Inter Pipeline’s Heartland Polypropylene Facility with an estimated cost of $4.3 billion. It started construction in early 2018 and began production in mid-2022. Dow also completed an Ethylene Expansion in 2021. These investments had a material impact on the sector, as shown in the chart below.   

Bumpy and revised - Canada’s economy struggling to grow

Canada’s economy avoided a ‘technical recession’, but the third quarter results were weak (-1.1% annualized). For the Bank of Canada, this won’t fundamentally change its view that the economy has softened considerably and ‘excess demand’ has evaporated.

The U.S. has parted ways with Canada on the GDP front. South of the border, real GDP clocked in at a blistering 5.2% (annualized) in the third quarter after a 2.1% showing in Q2. The results are even more stark when measured on a per capita basis: Canada has been declining since mid-2022, while the U.S. keeps trending upwards.

Still optimistic, but less than before

Business leaders make hiring and investment decisions. So why not ask them where they think the economy is going?

That’s exactly what the Business Council of Alberta (BCA) did in their November Business Expectations Survey released Wednesday. Bottom line: Alberta businesses are still optimistic about the future, but not as much as they were in June. The less upbeat view mainly reflects the impact of higher financing costs. The sales outlook has largely held up from June, but hiring and investment intentions have softened. Labour shortages appear to be easing, as employers report that it’s getting easier to fill positions. Overall, this aligns with our expectations that economic growth will moderate next year amid interest rate pressures.

Interesting Fact: ‘The Last of Us’, a post-apocalyptic drama TV series based on a video game, was shot in Alberta. It also happens to be the largest series ever filmed in Canada according to the Motion Picture Association (MPA) Canada. The MPA estimates the Emmy-nominated series spent $141 million in Alberta, including $71 million for local cast, crew and production personnel and $70 million on local business.

Charts of the Week: Business investment and productivity

Canada’s labour productivity—output per hour worked—has been on a downward trend since mid-2020 and sits roughly where it was in late 2014 (as of the second quarter of this year). There are many potential sources of Canada’s languishing productivity, but one of them is weak business investment: it’s lower in real terms today (as of Q3 2023) than it was in 2014, prior to the big drop in energy investment (see chart).

Economists have long warned about Canada’s weak productivity growth and for good reason. Labour productivity is a key determinant of living standards and real wages. And with an aging population and more people retiring, labour productivity will need to play a larger role in driving economic growth. As Nobel Prize-winning economist Paul Krugman once said, “productivity isn’t everything, but in the long run it is almost everything.”

Major capital projects can help bolster investment and productivity in Canada. This brings us to Dow’s recent investment decision. As shown in the chart, the chemical manufacturing industry has one of the highest levels of labour productivity and compensation per hour of all industries. 

Daily trivia

Answer to the previous trivia question: The nationwide rationing of gasoline went into effect in the U.S. on December 1, 1942.

Today’s trivia question: In what city is Dow Canada headquartered?