Thunder Bay Building Permits: A Reality Check

A recent TBnewswatch story reported  the estimated value of building permits in Thunder Bay in 2017 was up substantially from the year before  at 146 million dollars.  Based on the numbers presented in the story, the increase in 2017 can be calculated at approximately 55 percent.  This is of course an upbeat year end story. Given the coming year will see both a provincial and municipal election, one can expect these types of numbers to be presented by local politicians as evidence that Thunder Bay's economy is doing well. However, it is important to adjust these kinds of number for inflation - that is present them in real dollars - as well as look at more than two years of data.

This is done in Figure 1.  Using annual total value of building permit numbers from Statistics Canada for 1998 to 2016 and adding the 2017 estimate from the City of Thunder Bay's Chief Building Official and then deflating using the CPI, the real value (in 2016 dollars) of total building permits is presented.  The good news is that 2017 is indeed up from 2016 but there has been an overall downward trend from peaks in real value reached in 2012 and 2013. Over a longer term view, a fitted linear trend suggests that there has been a slight increase in the real value of permits since the late 1990s but the 2017 performance is really not much higher than a decade ago or even two decades ago.


One can view the above chart as good news in the sense that construction activity over time in Thunder Bay over the long haul has been reasonably stable and perhaps even characterized by some very modest growth.  It should be noted that this activity is composed mainly of residential followed by institutional and government construction projects.  Indeed, the peaks in Figure 1 are much less impressive once you remove the government and institutional permit values. 

The composition of these permits is provided in Figures 2 and 3.  Figure 2 presents an area graph based on annual numbers while Figure 3 simply aggregates all the permits since 1998.  Nearly thirty percent  building permits since 1998 are of institutional and public sector origin.  Industrial permits are below 10 percent.  Commercial permits have been surprisingly large as a proportion of the total which is actually a cause for some optimism given that they reflect private sector perceptions of economic opportunities in Thunder Bay.

Thunder Bay Employment Flat for Forty Years

My recent Fraser Institute Blog post on employment growth in Canada at the provincial and CMA level since 2007 appears to have attracted a fair amount of interest if only based on the hits via my Linkedin page.  The article was posted on the Fraser Blog on December 4^th and by December 14^th, it had garnered 1,515 views.  The interest has been quite pronounced from Linkedin profiles in Ontario and of course particularly from the Thunder Bay area. As a follow-up, I decided to look at employment levels in Thunder Bay and Greater Sudbury from a longer-term perspective using data from Statistics Canada.

Now Statistics Canada has annual province level unemployment rates and employment data available on its site from 1976.  Its annual CMA level data only appears to go back to 1987.  So, in order to generate CMA employment levels and unemployment rates for Thunder Bay and Greater Sudbury prior to 1987, what I did (acting on the suggestion of my Lakehead colleague Rob Petrunia) was run regressions of CMA level employment and unemployment rates for both cities on the Ontario data along with a time trend variable.  The assumption is that employment levels and unemployment rates in the two cities should reflect what is going on in the province as a whole. The regression results were then used to estimate fitted values for Thunder Bay for the period 1976 to 1987 and for Sudbury from 1976 to 1990 (Sudbury data starts in 1990). 

The results are intriguing.  Figure 1 plots the unemployment rates in the two cities from 1976 to 2016 and there seems to be some good news here.  While unemployment rates in both cities fluctuate a great deal over time, they have generally trended downwards since the late 1970s.  The average unemployment rate in Thunder Bay between 1976 and 1985 was 9.7 percent while in Sudbury it was 11 percent.  Over the period 2010 to 2016, Thunder Bay’s unemployment rate was 6.1 percent while over the same period in Sudbury it was 7.5 percent. 

 

However, the good news seems to end when employment levels are examined in Figure 2 – at least for Thunder Bay.  Sudbury has seen its employment grow over time while Thunder Bay has essentially remained flat. In 1976, estimated total employment (full and part time) in Thunder Bay was 61,224 and in Sudbury it was 60,475.  By 2016, Thunder Bay’s employment was 60,100 while in Sudbury it was 81,700.  In other words, over 40 years Thunder Bay has essentially remained flat in terms of its employment level – indeed there has been a slight decline of 2 percent since 1976.  As for Sudbury, its employment level has grown by 36 percent since its estimated 1976 value.

 

A declining unemployment rate when total employment is growing can be seen as good news.  A declining unemployment rate when total employment is declining means that your labour force is actually shrinking faster than your employment level.  For Sudbury, a lower unemployment rate is good news given that it has been accompanied by rising employment.  For Thunder Bay, a declining unemployment rate is a misleading indicator and masks the moribund nature of its economy given that its employment level has been essentially the same for 40 years. 

Economic News Around the North, December 9th Edition

Winter finally arrived here in Thunder Bay this week with a plethora of  snow, cold and ice.  I left for a short trip to Montreal on Monday afternoon with rain and warm temperatures and returned the next evening to a winter wonderland.  What better way to spend a cold Saturday here than by warming up the house with homemade pizza....



Without further ado, here are some of the stories making the economic news recently in northern Ontario.

Rising tourism boosts local economy. TBNewswatch, November 25th, 2017.

This is yet another positive economic impact story. However, tourism falls far short of the economic impact of Lakehead University as one recalls from this past story.

The Ring of Fire and its associated "production facility" have also been making the news again in the region.

Sault mayor confident in Ring of Fire Smelter pitch. Northern Ontario Business. November 21st, 2017.

Smelter won't go where it's not wanted, Noront. Northern Ontario Business, December 6th, 2017.

The smelter (or the "production facility") is seen as providing volume that would make the troubled Ontario Northern Railway more viable....

Noront facility could make ONR viable: Timmins councillor, Sudbury Star. December 9th, 2017.

Of course, if you don't get the smelter, there is always the option of storing nuclear waste.  Ignace, Manitouwadge and Hornpayne are all still in the running along with two sites near the Bruce Reactor - South Bruce and Huron-Kinloss.

Nuclear fuel bunker shortlist includes 2 sites near Bruce reactor. CTV News Kitchener. December 6th, 2017.

Despite the allure of smelters and nuclear waste disposal sites, there is still a search for economic visions in the north.  The Sault is obviously taking the lead in what is one of northern Ontario's booming sectors - economic development consultants.

Sault Ste. Marie seeks economic development vision.  TheSudburyStar.com. December3rd, 2017.

And another economic development vision seems to be in the offing in Timmins....

Bolivian economic development group in Timmins. Timminspress.com. November 27th, 2017.

On a positive note....

Sudbury adds 600 jobs in November. TheSudburyStar.com. December 2nd, 2017.

However, Sudbury's unemployment rate edged up slightly to 6.2 percent from 6.1 percent.  Meanwhile, Thunder Bay's rate also went up to 6.1 percent from 5.8 percent the previous month.

Another item of relevance to northern Ontario.

Indigenous youth key to Canada's economic growth. Business Vancouver. December 5th, 2017.

Have a great weekend! Its time to enjoy the pizza.

Recent Policy Posts: Employment, Currencies and Recessions

Along with Northern Economist, I also blog on the Fraser Institute website as well as Worthwhile Canadian Initiative and from time to time my thoughts also find their way to other sites.  For my most recent contribution to the Fraser Institute on employment growth across Canadian CMAs over the last decade, take a look here.  This post seems to have garnered a lot of interest on my LinkedIn page particularly from my Thunder Bay connections though there have been alot of Toronto visitors too.  Then there is my contribution on digital currencies and bitcoin which was published on the Focus Economics Blog.  I join a number of other economists and analysts in presenting our thoughts on what the future may hold for currencies and central banking as a result of developments such as Bitcoin.  Then there is my most recent post on Worthwhile Canadian Initiative dealing with the ways in which we can deal with the next recession given current monetary and fiscal policy.  Finally, my contribution to the 2018 compendium of economic charts put out by Maclean's - 91 charts in total this year - deals with the federal share of total government spending and can be found here. As always, enjoy!

So What Happened to Free Trade with China?

Well, the news this morning was that the anticipated start of free trade talks between Canada and China has now been put off and the two countries will continue to explore whether to launch negotiations.  Given the hoopla that seemed to surround Prime Minister Trudeau's departure for China, it does seem a remarkable turn of events and somewhat of a loss of face.  According to the Globe and Mail, Mr. Trudeau declined to say what had stalled the free trade talks but said that Canada was holding out for a better deal.  Indeed, Canada may also be more wary in the light of reports that competition from Chinese manufacturing has had a negative effect on Canadian manufacturing employment and part of the delay is Trudeau playing to a domestic audience.

Of course, there is probably more to the story.  On the one hand, this could be the Prime Minister once again demonstrating to the Americans on the eve of the NAFTA talks in Montreal that Canada is prepared to walk away from a trade deal if it does not get a good deal.  Indeed, the Globe story noted that Canada wants a broader deal with China whereas China seems interested in a more "pared-down" deal.  If this is the case, then China will no doubt not be amused by being used as a negotiating ploy thereby making future negotiations more prickly. 

Still  perhaps the stumbling point was more on China's side.  From China's perspective, if they expect NAFTA to fall through then they may see it as improving their bargaining position with respect to Canada in any trade talks.  Waiting out the NAFTA negotiations to see if they fall through is a prudent strategy from their perspective and swooping in afterwards when Canada "needs" the deal more can be to their advantage if indeed what they want is a pared-down deal.

In any event, Canada is a small open economy and quite dependent on international trade.  Playing these type of negotiating tactics - if that is what they are - may actually make our life more difficult on the international stage.  On the other hand, what is going on here may simply be beyond Canada's control and Trudeau is simply reacting as best he can to moves on the part of both China and the United States acting in their own perceived best interests.