Energy no longer Alberta’s engine, says economist

Southern Alberta’s focus on agriculture has cushioned it against the recession that devastated parts of the province where the energy sector was the economic engine.

Todd Hirsch, chief economist with ATB Financial, told those at the Alberta Irrigation Projects Association water conference Nov. 21 that agriculture has created a more consistent economic base in the south because of the sector’s ability to control costs and improve efficiency.

Though by some measures the recession is over in Alberta, Hirsch didn’t support that supposition in his keynote address.

Hirsch said oil prices now hover near $50 per barrel, generally considered the break-even point for much of the oil industry. That’s better than the prices seen in 2015-16 but not everyone can function at break-even levels.

At the recession’s deepest point, Alberta’s unemployment rate reached eight percent and Calgary’s rate reached 10 percent.

“In the last 12 months, we have started to see some jobs coming back to Alberta and many of them in the energy sector, which is a bit ironic, since it was the energy sector in ‘15 and ‘16 that shed a lot of workers,” said Hirsch.

“Now this year they’ve been quietly hiring some back.”

However, those jobs are generally at a lower rate of pay.

“What this tells me is that Alberta’s energy sector is finding a way to get their costs down and to make $50 oil work once again.”

Hirsch provided some historical perspective to oil prices. In May 2004, they reached an all-time high. The price was $42.05 per barrel for West Texas Intermediate.

“It was raining money in downtown Calgary. Champagne corks were being popped. The province was in surplus. It was good times. Record high oil prices … today $42 oil is a disaster.”

Today, costs are coming down, largely through lower labour costs, said Hirsch. Though bad for workers, it does mean the industry is positioning itself to be competitive with oil at $50 per barrel.

Hirsch said he now views Alberta’s energy sector as the province’s backbone, not its engine.

“We can no longer rely on it … to be super fueling all kinds of activity around the province.”

In the Alberta retail sector, a key economic measure, sales hit an all-time high in the middle of 2014, just after oil prices started to collapse. By July 2016, they had reached the low point after fire drastically affected the Fort McMurray region and oil prices remained moribund.

In June 2017, however, retail sales surpassed the previous high.

Until the oil price crash, retail sales were on a steady climb and would likely have continued on that trajectory. Hirsch calculated that retail suffered some $39 billion in foregone sales in the last three years.

As for housing starts, another economic marker, there were 32,000 in the March to July period this year. Before the recession, 42,000 homes were being built in that same period and during the recession that number dropped to 18,000.

Hirsch said he thinks housing starts will shrink once again, to 26,000 to 28,000 as interest rates start to climb.

Economic recovery means a return to the previous level, he noted, and by most measures the province hasn’t reached those levels yet.

Evolution rather than recovery is a more accurate term for recent trends, he said.

“I might really wish that the economy is recovering … but just because we wish doesn’t mean that it is true.”

Alberta’s economy is about the size that it was in 2012, said Hirsch.

“It’s still feeling sluggish.”

However, slower growth in the energy sector may allow other sectors the chance to expand without having to compete with the high wages once offered by the energy sector.

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Comments

  • Harold

    This is a economist talking? I wouldn’t have gathered it by the comments. The oil industry is the natural resources in Alberta and if they do not move it there is no economy coming from that sector. That sector is merely an engine that has been turned off. High wages create a high value and that value is placed into the economy and is in fact the economy. The product also creates a value and it is placed into the economy and is in fact the economy. Lower wages creates a lower value and the lower value is placed into the economy and is in fact the economy. The product of the lower wages also creates a value and that value is placed into the economy and is in fact the economy. Agriculture is a natural resource and if it doesn’t move there is no economy; no values created- an engine shut off. One engine does not “catch up” to an engine shut off and neither does one engine ever stand in the way of an other engine. Animals can live off of Alberta’s natural resources (farmland) and they along with labour (wages) create a value and that value is added to the economy and is in fact the economy – if it moves. If it doesn’t move the economy of that sector is dead and the engine turned off. Every value that we create whether it be wages or product a dollar is printed for it. A dollar cannot be printed if there is no values created – only debt.
    Was this really a chief economist speaking? I wonder if the chief economist knows how to kick start the energy and oil sector back into life, or if he only knows, like the article suggests, how to wave it bye- bye. Perhaps he is a chief economy reporter but in my opinion he is not a chief economy creator. I can’t see that he has said anything that we don’t already know before we had heard his opinion. Premier Notley and her disciples of the brotherhood are not economy creators or builders; we get that, and neither is our Prime Minister and his brethren either, and we get that too – the unemployed all know how to count to zero when their ability to produce a value has been arbitrarily stripped from them by a corrupt and corruptible government.

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