NORTHERN ECONOMIST 2.0

Tuesday, 3 October 2017

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.

Thunder Bay Housing Coming Down

A report by Moody's Analytics reported in today's Globe and Mail says that higher interest rates, newer mortgage-lending rules and declining affordability are together going to put a damper on the growth of Canadian housing prices. Indeed, the price of single family homes in Canada is forecast to only grow at 1.3 percent annually over the next five years but there will be considerable variation across the country. Larger urban centers with growing populations particularly in southern Ontario will do better while many other cities will see declines.

As the accompanying graph constructed from data provided in the Globe article shows (July forecast), Toronto and Hamilton are still expected to lead the pack at growth rates of 7.7 and 5.8 percent respectively but after that the growth rates drop off and indeed move into negative territory.

Thunder Bay is expected to see annualized declines of 5.4 percent. Reasons for this are falling median incomes, slow population growth rates and slow rates of household formation - along of course with the fact that interest rates are on the way up. Other housing price reports on the Moody site also show that Greater Sudbury is forecast to have price declines. The May 2017 report for example (the April forecast) noted Sudbury prices over the next five years would decline by 1.2 percent annually. The same report also had Thunder Bay declining by 1.2 percent annually with a substantial revision now in the new report. What has changed over the last few months? Interest rates.

I think interest rates are really the big factor here given that Thunder Bay's housing prices managed to double over the last 10-15 years despite the weak economy and flat population growth. Not quite the growth of the GTA but still quite remarkable given the local demographics and economic performance.