NORTHERN ECONOMIST 2.0

Monday, 15 January 2024

Thoughts on Canada's Economic Future

I was invited to make a contribution on Canada's economy and its future by TheFutureEconomy.ca which is an online media outlet "that produces interviews, panels, and op-eds featuring leaders from industry, government, academia and more to define a strong vision for our future economy." My piece on Canada's economic challenges in coming years was published January 8th and titled:"Childhood's End: Canada's 21st Century Challenges."It was a privilege to be asked to contribute to this site given the range of leaders from across Canada who have also contributed their thoughts. There is also a nice promotional link with a bio and describing Lakehead University. The piece starts below and you can link to the site for the remainder:

In the pandemic’s wake, Canada finds itself in a world changed yet again with forces afoot that threaten its standard of living as well as its security and way of life. After nearly 150 years of operating under the umbrellas of relatively benign global superpowers, Canada needs to prepare for a multipolar world with respect to trade and economic growth opportunities that are linked to its foreign policy and defence capabilities. In many respects, Canada’s long adolescence has come to a rude end, and it must now learn to make its way in the world in a more adult fashion. This awakening, however, comes at a time when its economic indicators suggest economic weakness. Canada came to be...

Monday, 8 January 2024

The Perils of Northwestern Ontario Roads

The holiday season has seen a spate of accidents on the highways of northwestern Ontario - seven between December 29^th and January 6^th according to stories reported on TBnewswatch. This has resulted in a number of deaths and highway closures as well as an outage of service for TbayTel with numerous customers losing phone, internet and television service. Indeed, since mid-December at least five people have been killed in highway collisions in the region across ten major accidents. Indeed, according to a CBC report, 34 people were killed on northwestern Ontario roads in 2022. This has made road safety a major issue and it has been exacerbated by what appear to be an increasing number of collisions involving transport trucks. Collisions involving transport trucks on area highways appear to have grown from 13.4 percent of the total in 2016 to 21.3 percent in 2021.

Of course, whether or not it is more dangerous to drive in northwestern Ontario relative to the rest of the province invariably requires not absolute numbers, but relative comparisons based on rates of fatalities that are population adjusted. For example, using data from Ontario Road Safety Annual Reports, in 2022, Ontario as a whole had 592 fatalities on its roads while northwestern Ontario had 34. However, while northwestern Ontario accounts for 1.5 percent of Ontario’s population, it accounted for over 6 percent of its persons killed in collisions in 2022 based on these numbers.

The trend is even more stark if one plots these road deaths per 100,000 population constructed from data available since 2015 from the Safety Reports combined with population data for Ontario and the northwest. It should be noted that the 2021 and 2022 reports are still preliminary and therefore do not include the official regional numbers. While there are numbers for Ontario as a whole for those two years, the rate per 100,000 was also estimated using population figures for those years. Thus, 2021 and 2022 for northwestern Ontario and Ontario are “estimates” based on Ontario population, the reported total by CBC for 2022 and a calculation for 2021 done based on the average from 2015 to 2022 of northwestern Ontario to Ontario fatalities.

The results show that when done per 100,000 population there are substantially more deaths on northwestern Ontario roadways than Ontario as a whole. From 2015 to 2022, average fatalities per 100,000 population were 8.7 for the northwest while for Ontario as a whole they were 4.0. In other words, the roadways of the northwest are twice as deadly compared to the Ontario average. And, while Ontario appears stable over this time period, one could argue that the northwest is seeing an overall upward trend. Is this a problem? I would think so. The roads of the northwest – in particular its highways - are not just regional roads but national conduits for travel and commerce. This is a provincial problem with local and national implications given the number of lives being lost. Drivers beware.

Tuesday, 2 January 2024

Reflections on the New Year

Happy New Year to all! One must admit that 2023 has been a bit of a ride regionally, nationally, and internationally. Regionally, Thunder By and northern Ontario have had a reasonably good year economically though many of the trends affecting the country and the world – the higher cost of living, homelessness and a general angst and anxiety about the future – are also part of life here. Sometimes, even the nature of “high tech” 21^st century crime sometimes makes one wonder if the world has truly been turned upside.

The country’s economy has slowed but there is no recession yet. If anything, the Bank of Canada is not given enough credit for engineering what to this point has been a soft landing of higher interest rates, slower growth and falling inflation. As much as people complain about the cost of housing in Canada and the seeming inability to get things done, it also seems to be a feature of other countries such as the USA, the UK and Australia. Indeed, it is interesting how similar debates around housing issues are occurring in countries around the world. And of course, there is the international front where a definite challenge is underway from the CRINKs (China, Russia, Iran and North Korea) in three specific theatres – Middle East, Ukraine and Taiwan – and in the Cyber world to the EU-Anglosphere-Asia/Pacific Western Alliance.

Still, much of the global turmoil seems far removed from Thunder Bay which is still in many respects still somewhat both removed and integrated with life in the rest of province and country. Air travel is still the quickest and most convenient way to get from here to anywhere but the pre-pandemic age of numerous, cheap, and conveniently scheduled flights connecting Thunder Bay to Toronto and ultimately the world has departed for now. As much as Thunder Bay is plugged into the modern world, we still seem to wait a long time for things other places seem to get much sooner. After all, we have been waiting for an Ikea and a Costco since at least the mid 1990s. As my running joke goes, Thunder Bay is probably a great place to wait for the apocalypse. When the world ends, it will happen at least ten years later in Thunder Bay.

Of course, as much as there seems to be constant change and turmoil, after 33 years of teaching and research and nearly twice that number of years being alive, one achieves a certain serenity from the patterns of constant change. In many respects, one has seen it all. I reflect that during my career, my teaching has gone from hand-written lecture notes and chalkboards to electronic screens and PowerPoints while my research output was once typed on a manual typewriter after organizing index card cards from research trips to the library where sources were hunted down from a card catalogue. Today, I can surf any number of libraries and digital sources for both data and output on my laptop or iPad from the comfort of my own home. Writing - including blogging - is much faster than it ever was.

With all the new technology and social changes, one can sometimes start to feel like a dinosaur but the trick to avoid that fate is of course to maintain a curiosity and enthusiasm for the world around you, to see things in a different light, and to try new things. After all, despite the gloom, 2024 should be the quintessential Canadian year. A year of beer as we celebrate the year of 20-2-4s. What could be more Canadian than that? To a 2024 of hope and wonder and if things go off the rails, there is always a beer.

Saturday, 2 December 2023

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.

Wednesday, 22 November 2023

What the Federal Economic Statement Did Not Highlight

Well, the Federal Fall Economic Statement for 2023 is out and soon to be relegated to the collections of fiscal and economic history. There is a lot out there summarizing the economic and fiscal situation facing the federal government. Briefly, for 2023-24 it looks like revenues of $456 billion and expenditures of $489 billion for a deficit before actuarial losses of $32.5 billion and a deficit with actuarial losses of $40 billion. Inflation this year will be about 3.8 percent and next year the outlook is for 2.5 percent while real GDP growth in 2023 is now forecast to end up at a lower 1.1 percent and for next year at a paltry 0.4 percent. On the bright side, there are measures to create more housing, but they add up to perhaps 300,000 homes by 2031 which given the country apparently needs 3.5 million means the housing shortage is going to be around for some time to come.

Two things the numbers on the fall statement do not highlight. First, when one factors in population growth going forward at about 2.5 percent annually and the government's inflation and GDP growth forecasts, real per capita GDP is going to continue declining over the next five years. As Figure 1 shows, by 2028, inflation adjusted output per person by 2028 will be lower than it was in 2014. Given the anemic business investment in Canada and the resulting weak productivity performance of the Canadian economy and its inability to grow faster than population, falling real GDP per person means a declining standard of living. We are looking at essentially a lost decade or more if nothing happens to ramp up growth.

Second, a fiscal anchor or guardrail set as a deficit to GDP ratio of 1 percent means that there will be perpetual deficits for years to come of at least 30 billion dollars. Put more starkly as Figure 2 illustrates, federal revenues and expenditures will continue to grow in tandem like ships traveling alongside in the night but never actually meeting. This will result by 2028 in a net federal debt of almost $1.5 trillion and debt service costs of about $60 billion annually which as a share of federal revenue will account for about 10 percent of revenue.

Needless to say, it is not surprising that these types of projections are not front and centre from the perspective of a government facing slowing growth and rising spending.