The July 2022 Major City Insights Report for Thunder Bay has been released by the Conference Board of Canada and it paints a picture of major and broad based economic rebound that is “firing on all cylinders”. According to the Conference Board:
· Thunder Bay’s economy will rebound again in 2022 as forestry, tourism, and transportation boost economic activity to pre-pandemic levels. Real GDP growth of 3.9 per cent is forecast this year, down slightly from our forecast at the beginning of the year.
· The economy’s recovery is expected to continue into 2023, but risks are plentiful, especially if the Bank of Canada is unable to contain inflation.
· Thunder Bay is lagging the economic recovery province-wide, as real GDP in Ontario is already back to pre-pandemic levels. On the other hand, the city’s labour market has tightened markedly, even more than the province’s.
· Continued economic recovery, a tight labour market, and the possibility of teleworking should help improve the city’s attractiveness to migrants. This could be an opportunity for the city, especially as the federal government ramps up international immigration targets over the next few years.
· Real GDP is forecast to grow 1.0 per cent annually on average over 2023–26, while the city’s population will remain flat at around 125,000
While generally an upbeat report, it does note that Thunder Bay is nevertheless lagging the province wide economy, and this is expected to persist. While Thunder Bay’s real GDP growth in 2022 is ranked fifth amongst 11 comparator CMAs (including places like London or Sudbury) for the 2023-26 period it is forecast to remain at number 11. Total employment will recover to about 65,000 jobs (up from 61,000 in 2021) but will essentially remain around there until 2026. Housing starts will also recover and return to their annual figure of circa 200 starts a year. These are ceilings that has not been breached since the end of the forest sector crisis. It should be noted that while the unemployment rate is very low, the shrinking of the labour force has been a factor in that.
Until the forest sector crisis of the early 2000s, Thunder Bay’s employment would essentially range from about 65,000 to 70,000 jobs. Since then, there has been a permanent downsizing of employment in the city and has ranged from about 60,000 to 65,000. Over the long term, there have not been sufficient long-term and sustained economic opportunities to boost growth above that. And, with slow in migration and an aging population, the paradox of a growing labour shortage at a time when there has been an economic rebound has driven costs and prices of skilled trades and many renovations upwards. As well, it remains that much of the recent growth remains in broader public sector activities such as health and education – indeed educational employment surged in 2021 according to the Conference Board.
At the same time, the report points out opportunities in tourism, transportation and manufacturing, and resources and while high inflation and rising interest rates are eroding household purchasing power, some of the city’s industries should see increased profitability form high resource prices. As noted, transportation will benefit as airport and port activity improves. Potash shipments are booming, while a rebound in western agriculture production will help lift grain shipments through the port this summer. Overall, transportation and warehousing output is forecast to grow by 15.8 per cent in 2022 as the sector continues to recover from the hit it took during the pandemic.
Indeed, one point acknowledged by the Conference Board Report is that there is significant “upside” risk to these projections – that is, they could turn out to be better than expected. As they note: “A significant upside risk to the forecast is the plan to spend as much as $1.2 billion over the next four years to build a new Thunder Bay Correctional Complex. The project will be funded by the province as part of an effort to modernize the correctional system.” Indeed, this project based on some expectations could generate an additional 700-800 construction jobs though given the current labour shortages in the city this will either drive up local costs even more crowding out other local activity or require out of town temporary workers. As well, there is future highway construction for the Thunder Bay to Nipigon corridor and numerous local road projects that will generate activity.
So, 2022 appears to be a positive year. Things are rebounding quite well to the point that there are local labour shortages and rising costs. Once the rebound bump is complete however it would appear that the local economy will stabilize at its recent historical levels of employment. Even projects like highway corridor upgrades and the new correctional center construction represent short term bursts of employment growth rather than a permanent long-term increase. Indeed, Thunder Bay’s economy continues to grow at below the rate of most other Ontario cities. What impact the rise in interest rates will have on planned or scheduled construction projects is of course a major downside risk on activity going into 2023. However, if inflation peaks this summer and subsides in the fall, one can expect interest rate increases to level off and a slow decline begin.
