These six 2017 trends prove Canada's future lies in more natural resources (not less)

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That's the takeaway from this selection of charts from some of the country's leading economic minds.

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They are drawn from the just-published annual collection of 75 economic charts from Maclean's magazine.

Natural resources are a major source of economic strength while central Canada continues to be hit by job losses in manufacturing. If it wasn't for the resource economy, it's difficult to say what predicament the country would be facing.

In borrowing these charts, we're also citing the Maclean's commentary from its economic experts as well as adding our own observations.

Trend #1: You can't keep a good province down

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The past two years have been a dispiriting time for Albertans. But it now appears there is some good news on the way. This chart from Trevor Tombe, assistant professor of economics at the University of Calgary (Twitter:@trevortombe), shows job creation will bounce back in Alberta, resulting in a lower unemployment rate. 

Writes Tombe in Maclean's: "Collapsing oil prices hit Alberta hard. The past year-and-a-half has seen falling employment, rising unemployment (especially long-term), record-low consumer confidence, and a ballooning provincial deficit. Many wonder when it will end; 2017 could be the year. Various forecasts, from the Bank of Canada, the Conference Board, and more recently ATB Financial, all suggest Alberta’s recession may be over and we’ve started down the long road to recovery. The chart to watch in 2017 is of Alberta’s hopefully healing labour market.”

Trend #2: Even in tough times, there's no taking away from the value resource workers add

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You might expect that once the Canadian mining and energy sectors started shedding jobs in late 2014 as world commodity prices tanked, there would be downward pressure on wages. Sadly, we did see a lot of jobs go – but resource wages did not decline. Why? One explanation would be that our highly regulated industries require accuracy and uncompromising commitment to quality. Anyone who has had the privilege of meeting oil and gas workers, or miners, at their job sites quickly comes to understand that there is no room for sub-par performance, not when lives are at stake. We can also infer that resource workers are more likely to enjoy the privileges of union membership, such as protection from short-term wage disturbances.

Earnings are highest in the country

This chart was provided to Maclean's by Todd Hirsch, chief economist, ATB Financial (Twitter: @ABeconomist). He commented: “Canada’s energy sector—the previous powerhouse of the national economy—has suffered tumbling prices over the last two years. Oil companies have been scrambling to get their costs down and efficiencies up, but they’re doing this not by cutting wages, but by cutting headcount. Over the last two years, total employment in resource extraction is down almost 21 per cent (most of that in Alberta). But average weekly earnings—which are the highest in the country—continue to rise. Since 2011 they’re up an astounding 17 per cent."

According to Hirsch: "This tells us two things. The first is that Canada has lost a lot of very high paying jobs. That is taking a toll on the macro-economy, especially in the west. The second thing we learn is that energy companies are opting to cut staff, not wages. If you’re still employed by a Canadian oil company, you still enjoy the highest average earnings in the country.”

Trend #3: Paycheques for Canadian workers generally are stagnant (or worse) 

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You've heard of growth, but to Armine Yalnizyan, senior economist with the Canadian Centre for Policy Alternatives, the thing to watch is "slowth".

"In nominal terms, average hourly wages have grown since the recession, but flatlined for hourly employees since 2013," says Yalnizyan. "Adjusted for inflation, they are losing ground. Salaried employees look poised to join them.

That's right - both salaried and hourly workers are seeing the same trend. But wait, there is a bright spot.

"Over the past decade or so, the national average has also been bolstered by strong wage growth from Alberta, a result of the rapid expansion of the energy sector," says Yalnizyan.

"Absent this growth, we see a troubling trend."

Yalnizyan's oberservation reinforces trend #2 that shows the resilience of resource wages.

Rising purchasing power is what makes an economy grow because businesses sell more when people are able to buy more. Yalnizyan concedes that innovation and technology do play an important role in advancing economic potential, but says "it is difficult to achieve economic growth without growing purchasing power, given that most economies are primarily fuelled by domestic consumption."

Mining, forestry and conventional energy jobs matter a lot because they are probably the most solid source of economic growth. Climate policies that cause properly regulated resource industries to unnecessarily shed jobs will not, in the long run, help Canada if voters lose confidence that we can pull off the econonomic-environment balancing act. This is why policies, for example the de facto ban on natural gas in Vancouver, or protection of trade-exposed industries in the national carbon framework, need to carefully consider the economic factors. 

Trend #4: The humbling of manufacturing workers that bred Trump is hitting (parts of) Canada

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In Canada's traditional manufacturing heartland of southwestern Ontario, industrial job losses have been acute.

According to Jim Stanford, economist and director with the Centre for Future Work at the Australia Institute, the fact that resource jobs have been disappearing in the oil-producing provinces means "the potential for backlash (whether right or left) can’t be discounted, without ambitious policies to cushion the losses of these workers, and create new jobs for them to go to.”

Stanford told Maclean's he looks to employment for explaining the shock victory of Trump.

“The pundits and pollsters will be trying to understand Donald Trump’s shock victory for years to come. But they agree on one point: he was propelled to victory (especially in key battleground seats) by anger and desire for change among a segment of society that’s faced dislocation and underemployment for many years. Thanks to forces of deindustrialization, globalization, deunionization, and the concentration of most new jobs in big coastal cities, the 'middle class dream' has been snatched away from a substantial share of the population who could once reasonably aspire to it."

Canada is coasting on "regional diversity"

Stanford argues that "Canada’s regional diversity, not to mention our stronger public sector and welfare state, help to dilute and salve the resulting hardship." In other words: resource powerhouses BC, Alberta, Saskatchewan and Newfoundland are letting Canada keep its head above water.

The chart above shows the loss of jobs in traditional ‘blue-collar’ industries since 2001 (resources, manufacturing, construction, and utilities), measured as a share of initial employment in the total economy. "Across the U.S. that dislocation totalled more than three workers in 100 over the past 15 years. In the four key Rust Belt states that turned from blue to red and pushed Trump over the top (Michigan, Ohio, Pennsylvania, and Wisconsin), it was more than five in 100," writes Stanford.

"There are hard-hit regions in Canada that have also lost many once-well-paid, goods-producing jobs: New Brunswick has been hardest hit (losing 3.8 industrial jobs from every 100 total jobs that existed in 2001)."

What about in resource-intensive economies in the West and Newfoundland?

Totally different story.

In those regions, industrial jobs were added, not subtracted: "For Canada as a whole there’s been very little net absolute job loss in goods-producing sectors." In the end, it turns out that net manufacturing job losses were offset by new jobs in construction (no doubt some of it building resource infrastructure) and direct resource activities.

Once again, the trend is clear: resources and the jobs created are the single strongest factor keeping Canada strong today.

Trend #5: Signs of further industrial decline in southern Ontario

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“Life hasn’t been easy for workers in Canada’s industrial heartland in the years since the Great Recession," argues Rob Gillezeau, assistant professor of economics at the University of Victoria. "Even with a substantial depreciation in the Canadian dollar, the positions that disappeared during the crisis have failed to return.

Gillezeau says in Maclean's that the election of Donald Trump and the Republican sweep of the United States Congress could "drastically increase the rate of Canada’s industrial decline."

A move by the Republicans to introduce national right-to-work legislation will cripple remaining private sector unions and result in a rapid decline in union density.

"This will open the gap in manufacturing union coverage between Canada and the U.S. Rust Belt to unprecedented levels, which will substantially reduce the relative wages and benefits of American workers," says Gillezeau. Depending on the scale of this "compensation shock", plant closures would hit southern Ontario as companies flock south of the border.

According to the economist, "Canadian provincial and federal governments have struggled to cope with the existing pace of industrial decline, making the prospect of an increased rate of deindustrialization particularly concerning.”

Given all the other trends we are seeing in these charts, the importance of resources becomes even more magnified. If we aren't hearing about this often enough, maybe it's because political and academic attention can sometimes seem too narrowly focused on declining industries in the vote-rich central part of the country. 

Trend #6: For those awaiting the inevitable resource rebound, here's some good news

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If some of these charts require close attention to connect the dots, here's a simpler one. This is the Baltic Dry Index, a measurement that fascinates Finn Poschmann, president and CEO of the Atlantic Provinces Economic Council. 

“There’s not much of the world, and not much of Canada, that doesn’t depend on trade in ‘stuff'," he says.

"And Canada sells a lot of heavy stuff. Like coal, ores, nickel and other metals, and grains. Over 2015-16 we’ll have sent about 31 million tonnes of grain to places other than the U.S. And that doesn’t count lentils, mostly to India. Or peas—we will be shipping about a kilo of peas per Indian this year. And if you want to know what is the global state of demand and supply for bulk ‘stuff,’ the Baltic Dry is your index."

To a Baltic Dry Index connoisseur like Poschmann, it's the index's instantaneous measure of demand and supply pressures that he finds so appealing.

"The Dry can be blown off course now and then, owing to the long lag in getting bulk carriers on and off the market, and it is slightly correlated with bunker fuel costs, but its instantaneous slope says a lot about the state of the world. And it has been sending a pretty happy message since summer 2016.” 

Along with the optimism of this index, it seems commodities including copper and metallurgical coal are poised for big comebacks in 2017 as the world economy perks up. Fortunately, past investments in building infrastructure are in place to get those commodities to market. The problem we now face is that as the United States loses interest in Canadian oil and gas, the facilities to get those products to overseas markets remains to be built – which means pipelines and LNG plants, , and we are all aware of the challenges there. 

If the broader public gets help in understanding why this matters, and why we are quite capable of conducting this shift safely and responsibly, then Canadian resources will continue in future be the thing they clearly are today: a powerful counterweight to the long-term decline of eastern manufacturing. 

 

So what does it all mean?

The takeaway from this crop of charts is clear, crisp and consistent, and every politician and public policy maker in Canada needs to go into 2017 with it committed to heart:

Policies that weaken resource jobs will inevitably weaken Canada.

From the six trends seen in the charts, here are three main learnings:

  1. Both the resource sector and manufacturing have been battered, but the difference is that resources are coming back while traditional manufacturing is not.
  2. Resource jobs not only pay better than most other jobs, they are more resistant to wage erosion.
  3. The resource/manufacturing contrast is also an east-west contrast pointing to increased reliance in future on the provinces west of Manitoba (plus Newfoundland) as the foundation of the national economy.

Not recognizing these truths is risky. The wrong policies can weaken Canada if they result in lost investment opportunities, fewer job options and fewer fiscal options for governments. 

It's also easy to forget that resource jobs create export revenues and royalties to government, and in this way are unique in the economy.

Transition to lower-carbon energy sources is clearly a desirable mission that must be embraced. We also need to understand that this transition will unfold over some span of time, and there is a lot of debate and disagreement right now on the length of this phase. When we hear utopian promises that a predicted boom in alternative energy will allow resource jobs to be "replaced" with jobs that are just as good, it's important to scrutinize the claims closely. 

The evidence is overwhelming that Canada has huge potential in resource jobs, potential that other nations envy. It should go without saying that developing our resources means doing so responsibly.

With central Canada's manufacturing in long, slow decline and families suffering as a result, it's clear that prosperity-creating resource jobs still need support to achieve the attention they deserve.

Resource Works is the only educational group in Canada that considers the needs of citizens, the environment, and business in the context of a resource economy. In 2017, we'll be around to continue this work. If you appreciate what we are doing, please let others know about it.

 

 


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