Thunder Bay's Economy: The Year Forward and Back

 

As 2023 winds down and 2024 arrives, a retrospective combined with a look ahead on the economy is a timely exercise.  The economic indicators to date for 2023 suggest that Thunder Bay has had a very good year.  Average monthly employment in 2023 to date is up about 3 percent over 2022 – representing nearly 2,000 new jobs.  However, while average monthly employment appears to have recovered from the pandemic, it has yet to permanently surpass the 2018 level.  However, on the plus side, the accompanying figure suggests that Thunder Bay’s employment does appear to be on a modest longer-term upward growth trend after years of being seemingly flat.  As well, the seasonally adjusted unemployment rate remains around 5 percent and the average for 2023 is lower than 2022 which suggests that the local labor market does not have a lot of slack in it.  

 

 

Along with employment opportunities being generated in large public sector construction projects in both the city and the region, there is also substantial activity in the local retail and tourism /hospitality sector with the opening of new retail and food service outlets as well as a very successful cruise ship season.  The port has also seen growing grain shipments as Thunder Bay resumes much if its traditional role in Canada's grain transport network.  On the housing front, while starts are not at historic highs, there nevertheless has been substantial activity particularly in the multi-residential unit sector.  Overall, Thunder Bay has seen healthy economic activity despite the recent rise in interest rates.  This is the result of continued activity in its traditional sectors of construction, forestry and port activity combined with activity on the mining front. As a result, population can be expected to grow albeit at rates still well below provincial and national growth rates.

Perhaps the biggest impact locally is the construction of Thunder Bay’s $1.2-billion provincial jail which until completion in 2025 will drive Thunder Bay’s labor market and economy even if the Canadian economy slows down in 2024. At the same time, the massive project has complicated the availability of local trades people with lengthy waiting lists for electricians, plumbers and carpentry services for smaller projects and home renovations assuming that you can even get trades people to agree to come.  However, completion of the jail project will likely see a ramping down of economic growth in the economy and in the absence of equally large new projects some alleviation of a relatively tight labor market particularly in building trades.

According to the Conference Board of Canada, housing starts in Thunder Bay are expected to grow but the numbers in their forecast seem unlikely to meet the 275 annual units required to meet provincial targets.  Nevertheless, Thunder Bay appears to be pressing forward with plans to apply for federal funding to build two thousand homes over the next three years - over 600 new units a year.  An average of 600 to 700 new homes a year is an amount that has not been seen in Thunder Bay since the baby boom years of the 1960s and 1970s.  Ultimately the success of such a grand scheme depends on local demand and this depends on what interest rates are like, what the state of the economy is and whether people have the incomes and purchasing power to pay for the housing.  Never mind if enough building trades people are available to actually do the work.

Going into 2024 and as noted in the most recent Conference Board Report, one can expect to see employment growth in construction, transport and warehousing, health care and social assistance, accommodation and food services and public administration.  Other sectors such as manufacturing, utilities, professional and scientific services, and educational services are expected to remain flat or even decline slightly.  Declines can particularly be expected in the areas of educational services given regional demographics and public funding levels, as well as the local FIRE sector (finance, insurance, real estate) given the rise in interest rates.  The post-secondary sector in Thunder Bay is also in uncertain territory given the dependence on volatile flows of international students and lack of clarity from the provincial government as to what directions in funding it may pursue in the wake of the Blue-Ribbon Panel Report. While the Blue-Ribbon Report called for increases in tuition and the provincial government grant to post-secondary institutions, the government’s response to date has been to continue to seek efficiencies which means the structural problems of university finances are unlikely to be resolved anytime soon.

Going forward there is also some economic uncertainty on several fronts.  It remains to be seen what the long-term outcome of the sale of Resolute Forest Products to Atlas Holdings will be on both local production and employment levels.  The future of the Alstom plant is also always precarious in the absence of a major transit project to generate longer-term employment.  As for the future of lithium refining in the region by companies such as Rock Tech Lithium, Toronto’s Avalon Advanced Materials and Green Technology Metals of Australia, there are positive expectations that these projects will finally trigger the long-awaited mining boom given the flurry of recent announcements and media stories. 

However, despite purchases of waterfront land, to date these are all plans, and the industry appears to be waiting for public money to assist their development.  It is unclear if any of these companies will be able to raise the necessary funds either publicly or privately to finance their activity in the face of international competition in the industry with other players with their infrastructure needs already in place.  As well, demand for fully electric vehicles – a key driver of the demand for lithium – has also been exhibiting weakness given the cost of the vehicles, their range, the availability of charging facilities and competition from alternatives such as hybrids as well as traditional gasoline powered vehicles.  As a result, the lithium refining industry in Thunder Bay and Canada while hopeful in its signs, may remain a work in progress for the foreseeable future.

Of course, in terms of what Thunder Bay can do to deal with all these changes and the economic uncertainty does not have a simple answer.  Thunder Bay, much like Canada as a whole, is a small economy unable to influence global economic and political trends beyond its borders.  Nevertheless, given the current buoyancy in the local economy, it is important to make hay while the sun shines.  Going forward, Thunder Bay must continue to make itself as attractive a jurisdiction for business investment as it can.  That means continuing to provide quality of life amenities, a range of useful and timely services for all demographic groups and a competitive local municipal service and tax environment.  Needless to say, at particularly at the municipal level, there will be a need to provide more while keeping the tax burden down – a tall order to fill at the best of times.

Northern Ontario: Economic Indicator Overview

 

This is a follow-up post to the post last week in the wake of  an economic overview of the challenges and opportunities facing northern Ontario’s economy presented at the Regional Meetings of the Economic Developers Council of Ontario in Thunder Bay.  As the year draws to a close and we enter 2023, along with the demographic indicators, it is worth presenting some of the highlights for the regional economy in terms of economic indicators.  This post, a quick overview of some of the key economic trends that have been emerging in northern Ontario over the last while and they provide a framework for viewing the future.

 

First, Figure 1 looks at the evolution of employment in northern Ontario since 2006 and presents it alongside the similar trend for Ontario as a whole (note the dual scale). Ontario as a whole has seen its employment grow from 6.53 million jobs in 2006 to 7.37 million jobs by 2021 – an increase of 13 percent.  Naturally, there have been bumps along the way – namely the 2008-09 Great Recession and of course the 2020 drop in employment as a result of the COVID-19 pandemic.  However, 2021 saw a recovery from the pandemic drop and as we close out 2022, Ontario has seen employment growth continue.  The north is a somewhat different story. Simply comparing the two end points of 2006 and 2021, total employment has declined about 5 percent in the Northeast and about 6 percent in the Northwest.  In the wake of the forest sector crisis of the early 2000s, there has been a permanent downsizing of employment in the region – that is, while there has been recovery and there is a stability in employment over the long term, not all of the jobs shed then have been recovered.  Moreover, in terms of the pandemic rebound, the northwest in 2021 rebounded better than did the Northeast as illustrated in Figure 2.

 

 

 

 

 

The last two decades have seen a period of unprecedented economic change in the north which has seen jobs both created and destroyed and also accompanied by a labor force and population that has been aging at a faster rate than the rest of the province.  Altogether, the economy has been stable and has shown signs of growth in several sectors.  Employment over the long term has been growing in agriculture, profession, scientific and technical services, education and health and social services. With respect to the two largest cities, employment has actually grown somewhat in Sudbury and Thunder Bay but has shrunk outside of these two centers for the overall slight decline in the region.  Moreover, as a result of the rapid aging of the population, the labor force has shrunk faster than employment resulting in unemployment rates as low or often lower than the provincial average.  

 

 

 

 

 

There is growth in total output in northern Ontario particularly in the major centers of Thunder Bay and Sudbury as illustrated in the two final figures.  Real GDP in 2022 will finally have reached pre-pandemic levels in both cities.  Post-pandemic recovery in terms of real GDP growth in 2021 was actually better in Thunder Bay relative to either Sudbury or Ontario as a whole.  For 2022, the year is expected to end out seeing growth in real GDP in Thunder Bay and Sudbury that pretty much matches Ontario as a whole.  The robustness of the mining sector and growing Indigenous economic development, along with opportunities in tourism, agriculture and health and education services appear to be the source of growth and are the drivers in addressing the twin challenges in 2023 of fostering both economic and population growth in the north.

Prelude to Municipal Election: Thunder Bay Economic Overview

As the election campaign for Thunder Bay Mayor and City Council begin to heat up, there will be attention focused on how Thunder Bay’s economy has been doing over the last four years.  The Conference Board and Statistics Canada both provide data for  quick snapshots about how Thunder Bay has done since 2014.  First, real GDP numbers for Thunder Bay (in 2007 dollars) from the Conference Board show that the city’s economy since 2014 has grown at annual rates ranging from a low 0.7 percent in 2015 to a high of 1.4 percent in 2017 with a forecast growth of 1 percent in 2018.  While the local economy is growing, its growth rate is well below that for Ontario and Canada which in 2017 alone saw real GDP growth at 3.2 and 3.1 percent respectively according to the Conference Board. Indeed, out of 29 CMAs in 2017, Thunder Bay ranked second last in real GDP growth – just ahead of St. John’s which saw growth of -1.7 percent.

It turns out that in the wake of the 2014 municipal election, growth faltered in Thunder Bay and that is also borne out by the employment numbers.  According to Statistics Canada, Average monthly employment in 2014 was 61,608 and fell to 59,650 in 2015 and then began to rebound (see Figure) and to date in 2018 averages 61,967.  So, this suggests that the last four years have seen just over 300 jobs added to the Thunder Bay economy which works out to about 75 jobs a year.  (By the way, don't be fooled by what looks like dramatic employment growth since 2015 - after all, the scale on the Figure ranges from 58,000 to 62,500) However, this masks the ebb and flow across sectors.  Manufacturing, public administration, finance, insurance and real estate employment have all declined while there have been increases in accommodation and food services, transportation and warehousing and retail.  Other sectors have been stable.

 

The shrinkage of employment in the finance, insurance and real estate sector is a function of declining house sales and weak housing starts.   As the Conference Board noted in its Winter 2018 Outlook: “Thunder Bay’s uneven economy and slumping population have impaired residential construction. While housing starts clocked in at just under 300 units last year, this was due to an upswing in construction of multi-family homes, particularly apartments, which are relatively infrequent here. Tellingly, CMHC data show that area builders have had no unsold apartments since August 2016. Such projects are risky in an economic environment like Thunder Bay’s, so builders wait for pent-up demand to accumulate, then pre-sell their units.”

What is also interesting is the comparison of employment between Thunder Bay and Ontario as a whole.  In 2016, according to the Conference Board, 16 percent of employment in Thunder Bay was industrial versus 20 percent for Ontario.  As for office employment, it was 20 percent in Thunder Bay and 28 percent for Ontario.  At 5 and 15 percent respectively, the shares in Transport and Warehousing and Wholesale and Retail Trade are the same as for Ontario as a whole.  However, when it comes to non-commercial services (i.e., health, education and public administration), Thunder Bay’s employment share is 27 percent compared to 19 percent for Ontario. When it comes to other services (arts, entertainment, recreation, accommodation and food) Thunder Bay is at 16 percent compared to 13 percent for Ontario.

So, the long and short of Thunder Bay’s economic performance over the last four years is that while not a disaster, it has been uneven.  Real output growth has been weak and total employment has essentially remained stable and within that there is a shift to services particularly of the non-commercial variety meaning more emphasis on public as opposed to private sector employment growth. The lack of population growth combined with an aging population has led to a weakening of the housing sector. That is the current reality.