NORTHERN ECONOMIST 2.0: 2017

Wednesday, 27 December 2017

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.

Thursday, 14 December 2017

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.

Saturday, 9 December 2017

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.

Tuesday, 5 December 2017

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!

Monday, 4 December 2017

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.

Tuesday, 28 November 2017

Is Income Inequality Responsible for Thunder Bay's Deteriorating Social Fabric?

Thunder Bay has seen a number of deteriorating social indicators over the last few years which include rising homicide rates, tragic deaths of indigenous people and increasing use of foodbanks. In looking at the causes of what appear to be increased poverty and violence, one might consider that these trends are the result of rising income inequality. Income inequality in both Canada and the United States has been rising over the last few decades and researchers have been drawing links between health status and economic inequality as well as the role of inequality in fostering environments conducive to crime and violence.

We had a talk last week at Lakehead University from Martin Daly whose book Killing the Competition makes the case that most homicides are the result of competition between males over goods that are distributed inequitably. In other words, economic inequality drives the homicide rate and all things given one would expect more unequal societies to have higher crime and homicide rates. Of course, this raises the question as to what income inequality has been like in Thunder Bay over the last few years and whether it too has trended up.

Needless to say, information on income inequality at a CMA level is not easy to obtain or construct. However, there is tax filer data available from Statistics Canada obtained from Revenue Canada and it is possible to obtain annual data on median total tax filer incomes for the top 1 percent as well as the bottom 50 percent and construct a ratio. One can construct a simple dispersion or inequality measure by taking the ratio of the median income of the top 1 percent to the median income of the bottom 50 percent on the tax filer total income distribution. If this ratio goes up over time, it implies increasing income inequality while if it goes down it implies decreasing inequality.

The figure below plots this measure of income inequality for the period 1982 to 2015 for Thunder Bay as well as Greater Sudbury and Ontario. The results are intriguing. In 1982, the median total income of the top 1 percent of tax filers in Thunder Bay was 11.9 times that of the median for the bottom 50 percent - $78,200 versus $6,600. By 2015, the ratio was 12.34 - $236,900 versus $19,200. While income inequality in Thunder Bay has gone up somewhat over time, much of the increase was actually between 1982 and 2001 when the ratio rose from 11.9 to 14.2 and has actually moderated since.

Given that homicide rates in Thunder Bay trended downwards from the early 1980s to 2007 and surged since 2007, there does not seem to be much correlation here. Moreover, Figure 1 also plots the same inequality measure for Greater Sudbury as well as Ontario as a whole. Since the late 1990s, Greater Sudbury has actually been more unequal with respect to this inequality measure than Thunder Bay and yet its homicide rate is now lower. As well, both Thunder Bay and Sudbury have a much more equal distribution of tax filer income than Ontario as a whole which saw its ratio rise from 15.3 in 1982 to peak at 24.9 in 2006 before declining to 22.2 in 2015.

So whatever is disturbing the social fabric of Thunder Bay, income inequality does not appear to be the obvious culprit.

Thursday, 23 November 2017

Homicide Rate Up Again in Thunder Bay

Statistics Canada released its 2016 homicide statistics yesterday and for Canada as a whole, the total number of homicides actually declined slightly with the national homicide rate falling by 1 percent to 1.68 per 100,000 of population. Of course, when Canada's urban areas are examined, there is quite a bit of fluctuation around this national average. For Canada's CMAs, the homicide rate in 2016 ranged from a high of 6.64 per 100,000 of population in Thunder Bay to a low of 0 in three cities: Trois Rivieres, Kingston and Greater Sudbury (See Figure 1)

If you look at the percentage increase in the homicide rate, the rankings change somewhat. The largest percent increases in the homicide rate were in Ottawa, Gatineau and Thunder Bay. Fifteen CMAs saw an increases in their homicide rate, two saw no change (Brantford actually had zero murders in 2015 and 2016) while the remaining 17 CMAs saw declines in their homicide rates. (See Figure 2).

Thunder Bay is up again after a decline in the homicide rate in 2015. If you need a refresher on long-term trends in Thunder Bay's homicide rate, here it is down below. Thunder Bay's homicide rate trended downwards from 1981 to about 2008 and then began to trend up. For a local media take on this story, see here.

Wednesday, 22 November 2017

Bigger Deficits in 2016

Statistics Canada has released its 2016 Consolidated Government Finance Statistics and the combined deficit of all three levels combined – federal, provincial-territorial and local – was $18.1 billion in 2016 which was up from $12.9 in 2015. According to Statistics Canada, the increase in the combined deficit was attributable to expenses rising faster than revenue. Government spending in Canada in 2016 was up by 2.6% while revenues were up by 1.0 percent. The accompany chart from Statistics Canada summarizes the picture nicely.

The federal government saw an especially pronounced deterioration. The net operating balance deficit for the federal government was $10.0 billion in 2016, compared with a $2.1 billion surplus the previous year. Total federal expenses grew 4.2%, due to an increase in social benefits (old age and family allowances) and grants to provinces and territories expenses, while revenue actually was down 0.1%. A big component of that revenue drop incidentally was from income tax revenue – despite the increase in personal income rates on higher earners that kicked in. For a longer term take on federal finances, you might want to check another post of mine here.

As for the provinces, net operating balances in deficit were reported in 9 of 13 jurisdictions with Alberta (-$9.9 billion), Manitoba and Ontario (each -$1.7 billion) having the largest deficits in 2016. While still in deficit, Ontario's net operating balance improved the most, due to higher revenues from corporate income taxes and taxes on goods and services – but then Ontario’s economy in 2016 did see an improvement. As for the largest surpluses – meet the new poster children for fiscal responsibility in Canada in 2016: British Columbia (+$4.9 billion) and Quebec (+$4.4 billion).

Friday, 17 November 2017

Why Are Northern Ontarians So Happy?

I recently came across a Statistics Canada Report from 2015 on life satisfaction across Census Metropolitan areas and economic regions that presented ranked scores based on the responses to the Canadian Community Health Survey and General Social Survey. The responses are over the period 2009 to 2013 and the key question was:

“Using a scale of 0 to 10, where 0 means “very dissatisfied” and 10 means “Very satisfied”, how do you feel about your life as a whole right now?”

There were nearly 340,000 respondents to the survey and the results for the CMAs had samples of at least 1,800 to 2,000 respondents. Average life satisfaction from 2009 to 2013 across Canada’s 33 CMAs (as shown in Chart 1 below taken from the report) ranged from a low of about 7.8 in Vancouver, Toronto and Windsor to a high of 8.2 in St. John’s, Trois-Rivieres and Saguenay. More interesting is that both Sudbury and Thunder Bay are in the top ten in terms of life satisfaction. Moreover, the proportion of individuals reporting a 9 or 10 – the highest rankings – is highest in Sudbury and Thunder Bay and lowest in Toronto and Vancouver (As shown in Chart 2). Even when the results are adjusted for individual-level socio-economic characteristics such as income, life satisfaction remains higher in smaller communities like Thunder Bay or Sudbury.

I guess it bears repeating that economic success and achievement and life in the big city may not be all it is cracked up to be. Given the surge in rents and housing prices in places like Toronto as of late, and the increased congestion and traffic, one would expect these life satisfaction rankings results would persist if a survey was done today. Even with slower economic growth in northern Ontario, it remains that for many people there is an advantage to living in communities where there is a more intimate and human scale of life.

At the same time, given the higher rate of aging populations in smaller communities and the u-shaped relationship between life satisfaction and age the report notes, it may simply be demographics - an older population seems to be a happier one. While young people are striving and competing and making their way in the world, older people have pretty much come to accept where they are at and are comfortable in their own skins. Having a larger proportion of older people in a community may be the key to tranquility and happiness on a community level.

Nevertheless, northern Ontario can use all the good news it can get. Residents of northern Ontario have apparently decided to embrace Albert Einstein’s observation that: “A calm and modest life brings more happiness than the pursuit of success.”

Thursday, 9 November 2017

Thunder Bay Construction Intentions Drop, Sudbury Up

Statistics Canada's latest building permit numbers show an increase nationally in September with a monthly increase of 3.8 percent. Yearly (September 2016 to September 2017), the total value of permits in Canada was up 12.43 percent. As noted by Statistics Canada: "Canadian municipalities issued $7.9 billion worth of building permits in September, up 3.8% from the previous month. A 1.7% decrease in the residential sector was more than offset by a 13.9% increase in the non-residential sector. A high-value institutional building permit issued in Alberta was behind much of the increase." Ontario posted a decrease mainly due to lower construction intentions for apartments which probably does not bode well for the future of renters in the province.

With respect to the specifics across cities, the accompanying figure presents the percent change from September 2016 to September 2017 ranked from highest to lowest for Canadian CMAs. For all CMAs, the increase was 14.5 percent. At the top we have Halifax, St. John's and Brantford at 196.9, 154.5 and 145.2 percent growth respectively. At the bottom - well, Thunder Bay is last at -62.9 percent, just behind Hamilton at -43.7 percent and Kingston at -40 percent. Sudbury actually manages to shine at an increase of 123.3 percent - just behind Brantford putting it in fourth place. Of the 14 CMAs showing a decrease, seven were in Ontario - including Toronto which saw a year over year decrease of 13 percent.

Friday, 3 November 2017

Left Behind

The good news continues for the Canadian economy as the latest job numbers from Statistics Canada show a net increase in employment of 35,000 jobs in October. Indeed, one has to wonder why the Bank of Canada does not go out and raise interest rates a bit more given that should the economy slowdown it would give them some scope to lower rates to counteract the slowdown. At the moment we have large deficits at the federal level and low interest rates - really, how much more direct stimulus does the Canadian economy need at this point? What do we do if the economy goes into recession?

For Ontario, however, the picture is more mixed as employment there was virtually unchanged. Indeed, over half of the net employment growth in Canada came from Quebec and most of the remainder from Alberta. Ontario’s employment story got another interesting assessment from a Fraser Institute Report showing that almost all the recent employment growth in Ontario has been concentrated in the Toronto and Ottawa areas. Many of the CMAs outside of these two regions experienced employment declines. The figure below taken from the Fraser Institute report shows that quite a few Ontario CMAs - including all of those from northern Ontario saw employment drops.

Needless to say, when it comes to employment Ontario very much seems to have become a two-track economy with the North, East and Southwest portions of the economy not doing as well as the Toronto-Ottawa core. A notable exception is Windsor which has managed to create employment since 2008 despite the manufacturing downturn. Some of the cities that have been doing well - Guelph, Oshawa and Kitchener-Waterloo-Cambridge are all part of that area within direct and short range of the GTA.

Yet, the October numbers suggest Ontario as a whole has slowed down in terms of job creation even in the Toronto-Ottawa core. This does not bode well for the effects of the minimum wage increase coming in January. If an employment slump continues, it also introduces a new dynamic into the provincial election coming in June. If the feeling of being left behind gains momentum even in previously economically buoyant areas such as the GTA then the prospects for political change will rise.

Tuesday, 24 October 2017

Economic News Around the North, October 24th Edition

It is quite the blustery day here in Thunder Bay today so what better way to hunker down and enjoy the day than taking a look at the major economic news items over the last little while.

Ontario's GDP boosted billions per year by Lakehead University Thunder Bay, Orillia campuses. CBC Thunder Bay, October 24th, 2017.

Well, it turns out that according to a study authored by faculty at Lakehead's business school that Lakehead University's economic impact on Ontario is 1.4 billion dollars. To my way of thinking, the faculty are the core of the university - indeed all the expenditures a university makes are to allow faculty to generate research, teaching outcomes and human capital value added for graduates so given that there are about 300 full-time faculty at Lakehead, I would estimate my personal economic impact on Ontario's economy at 4.7 million dollars (1.4 billion dollars divided by 300). Based on my current salary, I am obviously grossly undervalued. That is a pretty good return to any investment. Come to think of it, hiring more full time university faculty is obviously a cheap and effective way to boost Ontario GDP. Let the hiring boom begin.

Business ties with India explored. Chronicle Journal, October 24, 2017.

Well, a few weeks ago it was a delegation from China. This week a delegation from India is passing through Thunder Bay. Given the precarious state of our NAFTA negotiations, I would imagine it is a good idea to try and build as many ties as possible with the Asia Pacific region.

Northern business owners in 'defensive mode' about proposed tax changes. CBC Sudbury, October 24th, 2017.

This is the northern Ontario take on the tax changes being shepherded by Bill Morneau. However, as we know there are going to be revisions. Moreover, there may be other goodies coming down the pipeline in the wake of today's fiscal and economic update in Ottawa.

And in other Sudbury economic and business news....

2 former chairs quit Sudbury Chamber of Commerce over casino, arena position. CBC Sudbury, October 19th, 2017.

No comment there. Sounds like a pretty strong difference of opinions.

While Thunder Bay is focusing on India and China for its economic enhancement efforts, it would appear that Timmins Economic Development Corporation has targeted Bolivia.

Exchange will see Bolivian delegates visit Timmins. TimminsPress.com. October 4th, 2017.

If you are interested in the Elliot Lake model of economic development, there is this...

Sault's becoming a popular retirement destination, credit analyst says. SOOTODAY.com, October 6th, 2017.

On the other hand, what if Amazon builds its new headquarters in the Sault? The Sault is sending in a proposal. Check here. Quite frankly, I have not come across other northern Ontario cities doing the same.

As well, there is television production activity underway in the Sault.

Producer returns with big projects for Northern Ontario. SaultOnline. October 15th, 2017.

And all the way in North Bay, there is this item referring to a recent Fraser Institute Report by Ross McKitrick and Elmira Aliakbari:

Ontario's green energy policies killed jobs.Nugget.ca, October 19th, 2017.

Even North Bay is apparently getting into the film business...

Film industry applauds local cinematography program. BAYTODAY.com, October 14th,017.

Have a great week!

Wednesday, 18 October 2017

Will It Be a Wynne Win Situation in June?

The consensus seems to be that Ontario’s current Liberal government and Premier Kathleen Wynne are headed for defeat come the June 2018 election. Recent polls have seen the government trailing third behind the Conservatives and the New Democrats. An IPSOs poll in mid-September also suggested that most Ontario voters –- 76 percent -- want a change in government.

Two cabinet ministers (Treasury Board President Liz Sandals and Deputy Premier Deb Matthews) recently announced that they will not be seeking re-election which some may interpret as a signal that there is not a lot of confidence in the government’s future past June. This is on top of Economic Development Minister Brad Duguid who announced last month he won’t run for re-election and Environment Minister Glen Murray in the summer.

As well, the Premier’s personal approval rating is low. There is the baggage of nearly 15 years of Liberal government rule including the demise of the manufacturing sector, high electricity prices, the high debt and deficit, and the gas plants scandal to which can be added the current trial underway in Sudbury. And the electricity sector seems to be a problem that never seems to diminish in scope given the recent Auditor General’s report that the Wynne government’s plan to reduce electricity prices will eventually be higher cost in the long run.

Yet, one should not count Kathleen Wynne and the Liberals out yet. Recent polls have suggested there has been a bit of a rebound in Liberal support with a September 30^th Forum poll suggesting the Liberals and PCs are tied for support in the vote rich Toronto area. Given the recent rebound in Ontario’s economy, the electorate may be less keen to turf the governing party in favor of gambling the PCs might do a better job with the economy. As well, there have been a range of initiatives –the minimum wage hike, changes to real estate rules, the basic income pilot that are likely to sway NDP supporters. And most Ontarians will not understand that a lower electricity bill today will eventually mean much higher bills tomorrow under the current Liberal plan. As for the departing cabinet ministers, another interpretation is that after 15 years one can expect to see the departure of veterans and renewal of candidates.

It all comes down to the campaign. The Liberals in Canada, whether at the provincial level or the federal level tend to campaign from the left and then govern from the right. They are usually quite successful in running campaigns with policies that take enough votes from the NDP to gain office. They are somewhat less successful in governing like PCs when it comes to economic matters given that seems to be a congenital Liberal predisposition to grand social, economic and industrial interventionist strategies. However, demonstrating this to the public requires a strong, inspiring and methodical policy campaign by the PCs and to date PC leader Patrick Brown despite any lead in the polls has yet to capture the imagination of Ontario voters.

In the end, one can imagine that Liberal support bottomed early enough this summer to allow the Liberals to position themselves as “the underdog” and come back from behind. Indeed, one wonders if this was not the strategy all along to allow the opposition parties to capture the lead in the polls and peak early. Of course, such a strategy can still backfire despite the recent policy stage being set by the Liberals if events deal them economic or political shocks. And there is always the strong possibility that the opposition leaders might finally get their act together and campaign more effectively.

It is going to be an entertaining next few months in the lead up to the election.

Sunday, 8 October 2017

Porter Airlines Says it's Sorry But Is it Enough?

Well, we had quite the flight delay with Porter Airlines yesterday. Our flight to Billy Bishop from Thunder Bay was supposed to depart at 11:10 am and when all was said and done it did not leave until nearly 6:00 pm meaning that from start to finish our trip to Hamilton in the end took twelve hours. We have traveled to Europe in less. Indeed, you can drive to Hamilton from Thunder Bay in about 14 hours straight if you put your mind to it. Still, compared to others on the packed flight with small children or who were traveling on tighter schedules to attend weddings or were unable to go back to their house and spend some time for the extended wait – we were fortunate. And Porter has demonstrated its concern and sympathy and very quickly emailed us with a 100-dollar voucher each (it came in at 4:52am this morning) to be used on future bookings with Porter. Based on the length of the delay and the amount of the compensation, it seems that Porter already complies with the new proposed Ontario minimum wage at least when it comes to the value of passenger time.

In the end the delay was for a “mechanical issue” and as one of the flight attendants who took the elevator with us at the end of the flight remarked it is better to be safe than sorry. I agree. Still, this is not the first mechanical delay with Porter on a flight to or from Thunder Bay that I or other members of my family have encountered. Indeed, over the last year there have now been about four such issues involving us with the most recent delay the longest. In each case, the weather was excellent and the plane on the tarmac and then suddenly…the dreaded delay due to a mechanical issue. However, if you are in Thunder Bay it is even more ominous because Porter Airlines must fly in the mechanic from Toronto on its next available flight.

Why Porter airlines and the other two airlines in Thunder Bay (Air Canada and Westjet) who also fly nothing but Q400s there could not get together to chip in and maintain one mechanic on a standby contract to service their planes is beyond me. Perhaps the recent announcement from Porter that they are making Thunder Bay a crew base will also mean they are going to keep a mechanic and parts on hand. I hope that is the case because I like flying Porter and the convenient access to downtown Toronto.

At the same time, I think Porter has had an awful lot of “mechanical issues” and having so many really is ultimately their fault. I think they have an aging stock of aircraft given that the planned beefing up with the C-Series fell through and they now need to renew their aircraft stock in a very competitive airline world. It's tough I know. Still, here is the thing. You can’t keep telling people they have a delay due to mechanical issues. It has happened often enough to me and my family now that inevitably I am starting to wonder if an airline with so many mechanical issues is the one I should keep selecting for my travel. I am already booked on a few more flights with Porter for the next couple of months but after that maybe I should shop around more. After all, better to be safe than sorry.

Thursday, 5 October 2017

The State of the North

The State of the North conference hosted by the Northern Policy Institute was held in Timmins from September 27-28 with much of the discussion focusing on reversing the north's economic decline. Charles Cirtwill, President of the Northern Policy Institute sent out the slides of his presentation with an invitation to share and today's post reproduces a few of those slides. Figures 1-2 present some GDP estimates by sector for the Northwest and the Northeast of Ontario while Figures 3-5 present non-residential building permits for assorted northern Ontario districts.

Economic News Around the North: October 3rd Edition

Here are some of the items of economic interest with respect to northern Ontario that have caught my interest over the last little while. There truly is never a dull moment when it comes to the economy of northern Ontario.

White River Benefits from new Harte Gold mine. CBCNews Thunder Bay, October 3rd, 2017.

While being a small resource based community means dire times when the main industry shuts down, the converse is that when a new industry starts up, there can be a boom. White River is getting good economic news.

Porter Airlines sets up a Thunder Bay crew base. TBNewswatch. September 19th, 2017.

This is definitely good news and raises the prospect that Porter may be looking at expanding its service west and south. I would expect to see more flights through Thunder Bay to Winnipeg and perhaps through Chicago Midway to connect with the current Chicago-Toronto run.

Liquid natural gas coming to communities on Lake Superior's north shore. CBCNews Thunder Bay, September 25th, 2017.

And here are two interesting and related items:

Delegates discuss keys to reversing decline. TimminsPress.com, September 28th, 2017.

The State of the North - A New Vision is Emerging. TBNewswatch, September 28th, 2017.

I suppose you can start to smell the prospects of elections coming soon. A provincial election is expected by spring while municipalities will be going to the polls next October. Needless to say, the shopping lists are being put together in the form of strategies and plans designed to reverse the northern Ontario economic decline and to get candidates elected. Such regional studies and strategies have a long history in the north - think back to the 1970s (Design for Development) or the 1980s (Royal Commission on the Northern Environment) or the 2000s (Regional Adjustment Strategy, The Northern Growth Plan, the Rosehart Report). Given the lack of success to date in reversing northern decline, one must admire everyone's faith in grand economic studies and development strategies but then I suppose there is no serious expectation they will reverse anything. Their purpose is simply to put together the wish list for new government spending initiatives designed to continue northern Ontario's palliative economic care. This is not really a new vision at all but rather business as usual.

And in terms of some of the more entertaining economic development strategies being touted:

City signs friendship agreement with Nanning, China. TbNewswatch, Septembner 22nd, 2017.

City makes friends with Nanning, China. The Chronicle Journal, September 23rd, 2017.

Apparently one of the visions discussed was shiploads of vegetables and beef and other agricultural produce from Thunder Bay's port to Nanning. According to one Thunder Bay City Councillor: "There is that kind of potential for our agricultural sector." I assume this meant western Canada's agricultural sector (but then why ship to China through Thunder Bay rather than Vancouver or Prince Rupert) given that Thunder Bay's agricultural sector would be hard pressed to feed 100,000 people locally never mind 7.5 million in Nanning.

Still, its nice to be friends with other cities even if the expectations are a little off kilter.

In other news:

Could more autonomy hurt the North? One expert says yes. Northern Ontario Business. October 2nd, 2017.

Cambrian student population reaches highest total in 10 years. Northern Ontario Business. October 2nd, 2017.

Give First Nations priority access to marijuana industry. Nugget.ca. October 2nd, 2017.

Developing a Smart City important for the economy. Saultstar.com. September 29th, 2017.

And in terms of negative economic impact when a major broader public sector employer shuts down....

Laurentian University strike enters second week, administration says new offer on table. CBCNews Sudbury. October 2nd, 2017.

Sunday, 1 October 2017

Canada's Economy is Going to Cool Off But How Much is Not "Predetermined"

Focus Economics has just released its October 2017 Consensus Forecast for Major Economies and the numbers for Canada bear some consideration in the wake of our recent surge in real GDP growth. Annualized GDP growth in the second Quarter of 2017 for Canada according to Focus Economics was 3.7 percent – the highest in all the G7-which averaged 2.2 percent. The world economy grew at 3.2 percent; the United States came in at only 2.2 percent while Germany managed only 0.8 percent. So, Canada seems to be on a roll.

However, looking ahead at the 3^rd and 4^th quarters and into 2018, the GDP growth rates start to come down. Canada’s 3^rd quarter of 2017 is forecast at 2.7 percent while the 4^th quarter comes in at 2.5. As for 2018, the 1^st quarter is forecast at 2.5 percent, the 2^nd at 2.1 and the remaining quarters at only 2 percent each. Canada is still expected to outperform the G-7, which by the 4^th quarter of 2018 is expected to see only 1.8 percent average growth. However, the gap between Canada and the G-7 narrows considerably.

Part of what is going to cool off the Canadian and G-7 economies is the anticipated rise in interest rates. The rate for three month T-bills in Canada was at 0.54% in 1^st quarter of 2017 but is expected to rise to 1.72 percent by the 4^th quarter of 2018. The average for the G-7 has it going from 0.54% to 1.14% suggesting that rates in Canada are currently expected to rise faster than other G-7 countries. Over the same period, 10-year bond yields are expected to rise from 1.63% to 2.56% in Canada and from an average of 1.48% to 1.91% in the G-7.

Of course, these interest rates are all still quite low by historical standards but think of them another way. From the 1^st quarter of 2017 to the 4^th quarter of 2018, Canadian T-bill rates are expected to undergo an increase from 0.54% to 1.72% - a percent point increase of 1.18 points but a percentage increase of over 200 percent. In other words, there is a doubling of debt service costs. Moreover, this increase is greater than the average for the G-7.

The coming slowdown in Canadian economic growth is going to be driven by two interest rate effects. First, the rise in interest rates will affect borrowing and investment by Canadian consumers and businesses. Second, Canadian interest rates rising faster than the United States and other G-7 countries means that all other things given, the Canadian dollar can also be expected to appreciate relative to other major currencies also affecting our exports.

In the end, much depends on how quickly Canadian interest rates continue to rise. Stephen Poloz, the Governor of the Bank of Canada in last week’s address in St. John’s remarked that there was “No predetermined path for interest rates from here” suggesting that future rate increase are by no means preordained. Of course, this introduces a certain amount of variability into forecasts as well as some uncertainty into the expectations of consumers and businesses. In the end, what this also means is that the amount of cooling off the Canadian economy may face over the next 18 months is also not predetermined.

Wednesday, 20 September 2017

The Not So Giving North?

Well, here is some interesting data on median donations by Ontario CMA in 2015 available from Statistics Canada (Table 111-0001). It is of course useful as an index of local generosity to charitable causes. Please note it is not a complete index as it only takes into account the value of donations and charitable activity also can involve a great deal of donated volunteer time - which this measure does not capture. Nevertheless, Figure 1 is somewhat disappointing when one looks at the performance of northern Ontario.

The median donation ranges from a high of $470 for Wellington Centre to a low of $140 dollars for Petawawa. With the exception of Elliot Lake which is in the middle of the distribution, northern Ontario cities are all clustered in the bottom third. Elliot Lake comes in at $340 followed by Kenora at $290, North Bay at $270 and Thunder Bay at $260. Timmins and the Sault are at the bottom of the northern median donation list at $160 and $210 respectively. It is a somewhat disappointing performance given our self-perception as being very community minded.

Of course, a possible explanation could be that the value of donations is a reflection of lower incomes in the North. However, as my last post demonstrated, income growth has been pretty robust in northern Ontario. Moreover, as Figure 2 shows, the median income of donors across Ontario CMAs shows that the northern Ontario CMAs are more dispersed across the income range. Donor incomes in northern Ontario CMAs are not clustered at the bottom. Elliot Lake, is at the bottom of the donor income plot and yet is the most generous northern Ontario CMA whereas Sudbury which has the highest median donor income is near the bottom when it comes to median donation values.

Needless to say, I am not too despondent over this. While all I can offer is anecdotal evidence, I think that donors in northern communities probably are much more giving of their time than money when it comes to charitable activity. Thunder Bay for example has numerous community events - most recently the 2017 18U World Cup - that are only possible via the selfless activity of numerous volunteers. Then there are the activities of food banks and other facilities that also rely heavily on donated time. So, in the end, when it comes to charity, I think money is not everything. Still, it would be nice to see those numbers go up. If Elliot Lake can do it, why not everyone else.

Wednesday, 13 September 2017

Household Incomes in Ontario: Northern Exceptionalism

Statistics Canada has released the figures for median household income in Canada from the 2016 census providing comparisons for the period 2005 to 2015. The median total income of Canadian households rose from $63,457 in 2005 to reach $70,336 in 2015 - an increase of 10.8 percent. This growth was led by the resource intensive provinces and Ontario appears to have done particularly poorly- it had the lowest growth rate at 3.8 percent. Even Quebec did better at 8.9 percent - the second lowest growth rate. Almost every metropolitan area in Ontario saw growth below the Canadian average - with an interesting set of exceptions.

What is interesting in these numbers given Ontario's poor performance is the performance of the major northern Ontario cities, what I like to term the N-5: Thunder Bay, Timmins, Greater Sudbury, Sault Ste. Marie and North Bay. Incomes in three of these five cities all grew above the Canadian average - a much better batting average than the rest of the province. Moreover, all five of these cities grew above the Ontario average.

Figure 1

Of course, median household incomes in these northern Ontario cities are still below the Ontario median (See Figure 1) but over the course of a decade they appear to have closed the gap substantially despite the forest sector crisis and other assorted slings and arrows. Indeed, as Figure 2 shows that median household incomes in Timmins, Sudbury and North Bay all grew above the Canadian and Ontario average. Thunder Bay and the Sault did not top the national performance but they still topped the provincial performance.

Figure 2

If you are wondering about income growth in some other Ontario cities, for the record: Toronto (4%), Hamilton (5.3%), Ottawa (4.4%), London (-2.1%), Windsor (-6.4%). The urban north of the province appears to have done surprisingly well in the median household income sweepstakes and this probably represents another factor in why house prices to date have been as robust as they have been in places like Thunder Bay and Sudbury.

NORTHERN ECONOMIST 2.0