Thunder Bay’s Economy: The Year Past and the Year Ahead

 

Well, it is nearly year’s end and for Thunder Bay, time for a retrospective on economic things past as well as a brief look ahead.  Thunder Bay has had a particularly good year given that population is growing, construction is up, and the Port is doing the best it has in years. The really big driver in Thunder Bay this past year would have to be the construction sector given the continuing construction of the new more than one-billion-dollar provincial prison as well as substantial rental accommodation construction.  In the case of the jail, as the Conference Board noted in its November 2024 Metropolitan Report on Thunder Bay’s economy: “Work on the jail really helps.”  Think about it, Thunder Bay’s GDP is just shy of $6 billion.  A project the size of the jail represents a massive distortionary shock to the local economy.

 

There are many workers who are commuting to Thunder Bay for the construction work or commuting through Thunder Bay to work at the mines and this has helped buoy demand for accommodation and services this year.  Indeed, local employment is up as well having grown from about 61,200 workers in 2021 to 63,700 by 2024 and is projected to reach nearly 65,000 in 2025 as current activity continues.  And our CMA population is indeed up also and now expected to be well over 130,000.  However, 65,000 seems to be the upper end of our new “post forest sector crisis employment range.”  Prior to the forest sector crisis in the early 2000s, our employment used to fluctuate between 65,000 and 70,000.  There has been a permanent downsizing of local employment. Even the Conference Board has noted that: “Despite the run-up, employment remains below the 2003 all-time summit of 65,500 workers.”

 

Given the reliance on construction, the real concern is moving into 2026 to 2027 when the provincial jail construction winds up given the massive scale of the project.  The projection for housing starts coming from the Conference Board suggest an annual flow of less than 200 new starts a year for the foreseeable future.  While the Art Gallery and the proposed Turf Facility may take up some of the construction slack as the jail project winds down, neither of those projects are of comparable scale to the jail project.  If there is a silver lining to this, it is that local homeowners might finally be able to get a hold of a local tradesman to do their repairs and renovations.

 

By the end of next year, the full impact of changes to international student visas will also have emerged which will more fully affect the local post-secondary sector as well as local retailers that rely on international student labour.  Should the currently lagging lithium and critical mineral projects finally emerge by this period, then they will likely help take up the economic slack.  Unfortunately, at present with the sales of electric vehicles slowing, it appears that demands for regional lithium development may have stalled for the time being.  As well, the demand for forest sector products remains weak.  Indeed, when it comes to GDP growth, the Conference Board notes that: “Thunder Bay’s real GDP has essentially stagnated against this sombre backdrop. It is on tap to ease by 0.2 per cent in 2024, after rising only 0.1 per cent in 2023. We expect 2.0 per cent growth in 2025. Local GDP growth will ease to 1.2 per cent in 2026 and 0.7 per cent in 2027, then return to 1.2 per cent in 2028”.

 

And then there is of course what the impact of President Trump and the proposed tariffs may be on the local economy.  It is of course unclear what the impact of tariffs might be unless they are also applied to regional natural resource products.  There are industries in our area that ship to the U.S. including wood and paper products, and minerals and a slowdown here may also impact the Port of Thunder Bay.  However, the incoming US President is more of a known quantity this time around and the evidence is that he is quite transactional with much of his behaviour designed to stake out bargaining positions.  Canadians should be prepared to wheel and deal.  It will be a tumultuous year to be sure with President Trump sending out assorted signals about how he feels about Canada.

 

 

Ontario Health Spending: What's Up and What's Down

 The Canadian Institute for Health Information (CIHI) has released its 2024 National Health Expenditure Trends data and it paints an overall picture of rising health spending.  As I have noted elsewhere, total health-care spending in Canada is expected to increase by 5.7 percent in 2024, after rising 4.5 percent in 2023 and only 1.7 percent in 2022 coming on the heels of the pandemic.  The picture for provincial government health spending is also one of increase but once adjusted for population and inflation, the results are more mixed particularly if one looks at changes since the year before the pandemic.  Over the period 2019 to 2024, British Columbia and Prince Edward Island see the largest increases in real per capita provincial government spending at 17 and 16 percent respectively while at the bottom are Manitoba and Nova Scotia, which over the five years have seen their per capita provincial government health spending stay essentially flat.  Ontario, over this same period saw an increase of just under seven percent.

 

 

Figure 1 plots real per capita Ontario provincial government health spending ($2010) from 1975 to the present and the evidence shows that since 2010, real per capita health spending spending growth was lackluster at best rising from $3,617 to $3,783 - an increase of of 4.6 percent or about half a percent annually.  After 2019, the pandemic saw a ramping up provincial government health spending to a peak of $4,316 in 2021 - an increase over two years of almost 14 percent.  Since 2021, there has been a decline in real per capita spending and in 2024 it is estimated to sit at $4,040 - for a decline of about 6 percent.  Nevertheless, real per capita provincial government health spending in 2024 is still projected to be 6.8 percent higher than 2019.

 

What is quite interesting is how spending by expenditure category has performed over the 2019 to 2024 period.  Figure 2 plots the percentage change in real per capita provincial government health spending by category.  Over this five year period, the largest increase has been for real per capita spending on other institutions - namely, long-term care - at nearly 50 percent.  This is of course understandable in the wake of what transpired in long-term care homes during the pandemic as well as the promise to build more long-term care beds for an aging population.  Next is home and community care at 10.7 percent , followed by public health at 9.3 percent and then hospitals at 8 percent.  Other professionals is next with an increase of 5.3 percent followed by capital at 3.2 percent.  What comes next however is even more interesting .  All other health care net of home and community care spending is down by about a third of one percent.  Spending on provincial government drug plans in real per capita terms is down 4.4 percent while physician spending is down 5.8 percent.  Finally, real per capita provincial government health spending on health administration is down nearly 24 percent. 

 The surprise here is that spending has dropped on two items that directly affects a lot of individuals in Ontario - namely, government paid for prescription drugs and physician services.   Obviously, if one measures availability of physician services by how much is being spent per person after population growth and inflation, it is obvious that Ontario is having trouble keeping up in this category.  With an aging population, the decline in physician and also drug plan spending is definitely going to be felt even if the provincial government asks us to take solace in the increases in long-term care, home care and hospital spending. 

Technological Change and Employment in Economic History

 

Technological change has been the chief contributor to economic growth since the industrial revolution. Yet, technological change always seems accompanied by anxieties related to long-term unemployment despite increases in both total employment and per capita income over the last 150 years.  This anxiety continues  with the current onset and diffusion of assorted new technologies including AI, machine learning and quantum computing.  Yet the evidence suggests that despite over 150 years of rapid technological change, more jobs have been created than destroyed so that on net employment has continued to rise and matched or exceeded population growth.

 

My coauthor Olivia Di Matteo (UBC) and I have a paper on the program of the Social Science History Association Meetings in Toronto this week that looks at whether the past can inform the future when it comes to the impact of technology – quantum computing in particular – on the economy.  Our paper overviews the recent history of technological anxiety with comparison to actual outcomes, surveys the state of quantum computing and the challenges it faces, and then tries to extrapolate from current available metrics and past performance what the potential effects on employment and income might be.  The historical evidence suggests a positive and significant relationship between income, employment and assorted measures of technological change including computing measures.  Going forward there is no reason why future growth cannot benefit from new quantum technology, but much depends on having a measure of quantum computing to gauge its impact on income and employment.  Measuring the impact of quantum computing is more difficult given that new metrics apart from those obtained during the age of classical computing may apply.

 

The focus in the remainder of this blog post (excerpted directly from material in that paper)  is the historical evidence on employment performance in three countries at the forefront of technological change over the last 150 years: The United Kingdom (Figure 1), Canada (Figure 2), and the United States (Figure 3)[See note at end of post for data sources]. The United Kingdom’s experience as the first industrial nation revealed increases in both employment and the labour force as technological change both created and destroyed jobs but with substantial net job creation.  Indeed, using census records on employment in England and Wales since 1871 and Labour Force Survey Data from 1992, Stewart, De, and Cole (2015) show declines in occupations such as agricultural labourers, washers, launderers, telephonists, and telegraph operators both in absolute numbers and as a share of employment.  Meanwhile, these declines were accompanied by increases in other occupations such as accountants, bar staff, hairdressers, and other services. Overall, employment in the United Kingdom has trended steadily upwards since the mid 19th century irrespective of massive technological change as Figure 1 illustrates.

 

 

 

The picture is similar for Canada, as illustrated in Figure 2.   Between 1851 and 2021, in tandem with a population that grew from 2.4 to 38.3 million – a 16-fold increase – estimates of the Canadian labour force show growth from 762,000 to 20 million – a 26-fold increase in size.  Employment data is available from 1891, and over the period 1891 to 2021, employment in Canada grew from 1.6 to 18.0 million – a 11-fold increase – while the labour force over the same span also increased from 1.7 to 20 million – an approximately 12-fold increase.  The slowdown after 2017 in terms of labour force and employment can be attributed to the impact of the pandemic, and as the chart illustrates, there was recovery by 2022.  Evidence for the United States parallels that of the United Kingdom and Canada with respect to employment as illustrated in Figure 3. Again, from 1900 to 2022 – ostensibly a period of great technological change – total employment in the United States expanded six-fold while the population grew four-fold.  

 

 

 

So, why all the anxiety about technological change?  Well, despite the historical evidence to date, there is a background foreboding that much like mutual fund returns, the past may not be an indicator of the future if the onset of quantum information technologies, AI and machine learning together somehow represent a fundamentally different economic process that unlike the past will destroy more jobs than it creates. However, at this point these new technologies are still in their infancy and there is really no reason at this stage to expect the future to be that much different than the past, unless the relationship between technological change and its contribution to the economy itself shifts in some unforeseen fashion.

 

Sources/References

 

Data Sources for Figures 1-3: UK [  Data Source: A millennium of macroeconomic data for the UK, The Bank of England's collection of historical macroeconomic and financial statistics, Volume 3.1.], Canada: [Denton and Ostry (1961); Historical Statistics of Canada; Statistics Canada Catalogue 71-201 Annual, 1973 & 1989, Historical labour force statistics, actual data, seasonal factors, seasonally adjusted data; Statistics Canada, v102029212 Canada [11124], Labour force (Persons), Total, all occupations; Both sexes v102029368 Canada [11124], Employment (Persons), Total, all occupations, Both sexes]; USA:[ Historical Statistics of the United States (HSUS) from 1900 to 1945 and that of the Bureau of Labour Statistics (BLS) from 1948 to 2023.]

 

Stewart. I., D. De, and A. Cole (2015) Technology and People: The great job-creating machine. Deloitte.

Inflation, Productivity and Real Wage Stagnation: Canada 1960 to 2023

 

Today’s CPI inflation numbers have many breathing a sigh of relief with the expectation that with inflation below 2 percent, more interest rate relief is on the way and Canadians can resume their high personal borrowing lifestyle.   Lost in the short-term euphoria and celebration of expected lower borrowing costs is the long term cost that inflation has had on our standard of living given the low productivity gains of the last five decades.  Nowhere is this more evident than when one takes a look at how real wages have performed over time.

 

Figure 1 plots the average annual monthly hourly Canadian manufacturing wage – nominal and real – for the period from 1960 to 2023.  The nominal hourly manufacturing wage data and the All-City CPI data are both from the US Federal Reserve of St. Louis data sets [CPALCY01CAA661N; LCEAMN01CAM189S] with the real hourly wage data in $2015.   Why manufacturing wages?  Well, the manufacturing sector has generally been held up as the beacon for good quality and high paying jobs with a lot of hand wringing as manufacturing jobs have declined as a share of employment.  It sounds old fashioned but many still regard manufacturing jobs as the “high ground” of an economy in terms of value added to which I would also add the resource sector (including agriculture).

 

 

 

When nominal hourly wages are examined, their performance looks impressive.  The monthly nominal manufacturing wage in Canada in 1960 averaged $1.78/hr. By 2023, it was $30.66/hr and the average annual growth rate of real nominal hourly wages in manufacturing was 4.7 percent.  However, when adjusted for inflation using the All-City CPI for Canada with 2015 as the base year, real nominal wages barely double over the period going from $13.64/hr to $24.91/hr.  The average annual growth rate of real hourly manufacturing wages over this entire period was only 1 percent annually.  Given that at 1 percent annual growth it would take approximately 72 years for a quantity to double, we can expect real hourly wages in manufacturing to be double those in 1960 by 2032.

 

 

 

Figure 2 plots the annual average growth rate of real hourly manufacturing wages and adds a 5^th order polynomial smoothing plot.  When one examines both Figure 1 and 2, it becomes apparent that the stagnation in real wage growth really sets in during the 1970s.  There was a brief uptick in real wage growth in the wake of the FTA and NAFTA (in 1988 and 1994 respectively) but decline sets in again after the 2008-09 financial crisis.  When one combines the productivity decline that starts in the 1970s following the first oil price shock with the effects of inflation, the erosion of the standard of living – as captured by real wages – is dramatically illustrated.  It makes the case for why bringing inflation under control is so important and also why we need a productivity agenda to drive Canadian policy going into the next election.

Harris or Trump? For Canada, Post November 4th Is Going to Be a Challenge

 

As we move into the final sprint of the US election, it bears as always to pay attention to the economic implications for Canada.  Whatever one’s political priors or favorites may be in this election, in the end it needs to be realized that when it comes to US trade and economic interests, it does not matter whether Trump or Harris wins– American interests trump (no pun intended) Canadian ones.  And in the case of the economy and our trade relationship with the United States, be prepared for some tough bargaining.  While 2024 marked the 30^th Anniversary of NAFTA, it has since 2020 been replaced by the USMCA or CUSMA agreement with renewal talks beginning in 2026. 

 

Along with perennial sticking points like milk and dairy or softwood lumber, in the United States, despite what economists and evidence might say about economic growth and the benefits of trade in the wake of NAFTA and CUSMA, the debate will be shaped by the widespread belief that NAFTA in particular resulted in job losses and wage stagnation.   In the case of manufacturing, the accompanying graphic summarizes quite nicely why the Americans are going to be playing hardball.  In many respects, US manufacturing job losses did coincide with NAFTA. 

 

Figure 1 presents annual Canadian and American manufacturing employment from 1976 to 2023 using a dual scale since US employment and population in general is about ten times ours.  In 1994, there were nearly 19 million Americans employed in manufacturing and 1.8 million in Canada. In the decade afterwards, by 2005, US manufacturing employment fell to 16.2 million while Canadian manufacturing grew to 2.2 million.  In the wake of NAFTA, American manufacturing employment fell by 14 percent while Canadian manufacturing employment rose by 20 percent. 

 

 

 

 Since 2005, American manufacturing employment has declined slightly to 15.6 million while Canada’s declined to about 1.8 million where it has stabilized somewhat.  In other words, over thirty years, Canada has stayed flat in terms of total manufacturing employment (notwithstanding the rise and fall from 1994 to about 2010) while the US has seen a decline.  The good news is that since about 2019, as evidenced by the 5^th order polynomial smoothing line, both countries have seen a slight increase in manufacturing employment as a result of fallout from the pandemic, trade issues with China and the rise of onshoring production activities.

 

Yet those same polynomial smooths show a pretty consistent decline for the US since 1976 with Canada doing somewhat better.  True, Canada is not to blame for the decline in US manufacturing.  Both countries have seen a decline in manufacturing employment over time both in absolute numbers as well as a share of total employment.  It is not 1960 anymore.  There have been productivity issues in both countries as well as intense competition starting in the 1990s from China and other Asian economies as well as Mexico which is/was a part of CUSMA/NAFTA.  However, that does not matter.  For the United States, creating jobs in manufacturing will mean looking at all the players – including Canada.  It will not matter whether Harris or trump becomes President in this regard.  Notice has been served.