Claire Young, Calgary Herald
More from Claire Young, Calgary Herald
It turns out that when spiders go up into space, they eventually figure out how to spin webs without the help of gravity. The first webs are a bit messy and don’t work, but then the spiders adapt to new methods.
The capacity of adapting to new or unforeseen circumstances that shift the fundamentals for how work gets done is also seen in the human world, adapting to disruptors in the work world. That’s the topic of ATB Financial’s senior economist Todd Hirsch’s new book, Spiders in Space — Successfully Adapting to Unwanted Change.
It was also a thread in his economic forecast presented at the Building Industry and Land Development Alberta’s annual conference in Jasper on Sept. 15.
The price of oil crashing reverberated around Alberta, causing a fundamental shift.
“The drop in oil price in 2014 — this was the single economic factor that changed, that threw Alberta flat on its back for two consecutive years, the fact that oil went from $107 (US) down to $27 a barrel,” said Hirsch of the price of West Texas Intermediate. “It has now recovered modestly and has been hovering between $45 and $50, pretty consistently in that band, for the last five months or so. What this is telling us is that markets have found a new equilibrium home they are comfortable with, with crude oil.”
Hirsch predicts oil to remain between $45 and $50 a barrel for the time being. However, there is a consensus in the oil industry that $50 is a break-even number, not number that leads to growth, so the remainder of this year and next year will continue to be challenging for these companies, he said.
While the energy industry shed jobs in 2015 and 2016, many companies have been hiring back — at lower wages — in 2017, indicating companies have found a way to made $47 oil work.
“Now that wages are coming down, it will be a little easier for sectors outside oil and gas to compete,” Hirsch said.
Meanwhile, retail sales have come back to a new high of consumer spending in the past 12 months, which is a good sign of consumer confidence and optimism. On the other hand, the recession also potentially cost retailers about $39 billion in foregone sales so retailers may feel they have a long way to go to catch up, said Hirsch.
“While retailers’ revenue is climbing, so are their expenses, from labour costs to heating and electricity costs. That has left margins for many retailers shockingly thin,” he said.
Housing starts from March to July marked an increase in the annualized rate of around 30,000 starts. Prior to the recession, starts were above 40,000 and then fell to below 20,000 during the recession.
Hirsch feels that some of this push in starts is due to people who waited to buy during the recession. They felt the time was right to buy in the past five months — feeling more secure in their jobs, prices possibly at their lowest and mortgage rates starting to increase.
“What I’m anticipating in the second half of 2017 and going into 2018, we might see some easing, some moderating in housing starts. Not a collapse, but a pulling back to 25,000 to 27,000 starts. It’s a bit of an illusion that home starts were so strong in that start of 2017. I think we’ve brought forward some of those housing starts and sales, leaving the second half of the year to moderate a little bit.”
Richard Goatcher, BILD Alberta’s economic analyst, notes that some of the strength in starts comes from the rebuilding of Fort McMurry following the devastating fire last year that razed about 2,400 homes and buildings in that community. The rebuild is a boost to start numbers — over 1,000 starts when there is often around 20 starts — the effect of which will tailor off by the end of next year, Goatcher said in an interview in Jasper.
The existing home market is another indicator predictor of what will happen in the new home market.
“That market in general is doing pretty well,” Goatcher said. “Sales across the province are up across the province by something like nine per cent. Resale prices are relatively firm. The demand is there, it is just not going to go back to those big numbers that we saw unless we get massive in-migration.”
Where new starts will slow significantly is in the new apartment-style condo sector, says Goatcher.
“There’s lots of product out there — it’s a buyers’ market in both cities. And that leads me to believe we’re not going to see that same sustained momentum in apartment construction for the rest of the year,” he said.
Also affecting many home buyers are the mortgage rates that increased in July and again in early September, following two increases to the overnight rate by the Bank of Canada. Hirsch isn’t expecting another rate increase this year, though perhaps two or three rate increases in 2017, pushing toward 2.5 per cent from the current one per cent.
With the Alberta economy the size it was in 2012, the coming years will see growth, though it may not feel as healthy as is it. Hirsch predicts 2017 will mark 3.2 per cent real GDP growth in the province, with a steady 2.0 and 2.1 per cent growth the following two years.
“The unemployment rate we think will become a big challenge, and that is where Albertans will still feel it,” Hirsch said. “Our expectation in 2017 is that the unemployment rate will average 7.9 per cent. Higher in the two major cities, and lower in rural Alberta.”
ATB Financial’s forecast for 2018 is a seven per cent unemployment rate.
“Rather than ‘recover’, I think ‘evolve’ is the proper word to describe Alberta,” Hirsch concluded about the province’s economic state.