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).

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.”

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.

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.

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!