Seeing beyond the illusions

Times Contributor   

 

Todd Hirsch balanced three illusions in one hand and a crystal ball in the other, as he addressed the business audience at the Chamber of Commerce luncheon held at the Strathmore Legion on Feb. 4.

“As a child I was fascinated with optical illusions,” said Hirsch. “I was fascinated with how the eyes play tricks on the mind, leading you to perceive or see one thing, when in fact you are not seeing that at all,” said Hirsch. “What we want to believe or think about Alberta’s economy may not really, in fact, be what is going on. There may be other ways of viewing what’s going on in the provincial economy.” 

He revealed the first illusion as the labour market. 

In the last three years there have been over 202,000 new jobs created in Alberta, almost a 10 per cent increase. It is about one third of jobs created Canada wide, in a province with just 12 per cent of the national population. We look like we are outpacing the country in the area of job growth.

However, he asked the audience to refocus and peel back layers to look at this differently. He said the jobs being created are centred in the oil and gas industry, leading to the highest wages in this sector. Construction is next with science technical jobs as third. The same percentage of jobs was created in food and accommodation, heath care and service areas, but they are generating the lowest income return. 

“I suggest that we are seeing an awful lot of jobs at the high end of the pay scale and at the low end of the pay scale,” said Hirsch.

But the mid-range pay scale jobs are growing at the same pace as the national average.

He said this has implications for families moving here to improve their income status. He cautioned that if they were looking for jobs in mid-range pay scales, the chances of securing a job may not be any better than where they lived previously.

“There is also a bit of an illusion going on in consumer pricing,” said Hirsch.

We are told overall inflation is one to two per cent. Yet, when we look at things like produce, prices have risen 15 per cent. He said the lower dollar may even increase this with imported goods. Other areas showing increases are electricity and natural gas, rental accommodations and transportation costs. On the other side the cost of telecommunications, home furnishing, electronics, and personal services are going down. 

“When we look at inflation it is mostly non-discretionary items. Things being used by lower income household…the rate is disproportionate,” said Hirsch.

So those with lowest incomes need to pay for the higher inflationary items just to survive. Those with high incomes are seeing savings on things that are not necessarily essential. Hirsch said this is the problem when you talk about averages.

He suggested Albertans who gripe about funds leaving the province in federal equalization programs should also look again.

“We tend to focus on the outflow of wealth from Alberta, but there is another way to look at it,” said Hirsch.

He suggested that money is coming in through those moving to the province. Another province has paid for their education, they move here to work and pay taxes, then when they retire they move back home. Looking back 20 years, there have been 470,000 people move here. Hirsch figured there was approximately $52 billion dollars being transferred into the province, through the value of pre-paid education costs.

“We in Alberta need to recognize that we are part of a country like Canada with labour mobility. That enormously benefits this province financially, through the transfer of interprovincial migrations,” said Hirsch.

Then Hirsch pulled out his crystal ball with forecasts for 2014.

He said energy prices are on kind of a roller coaster, due to various factors, and it will continue to fluctuate throughout 2014, as it had in 2013, but on the whole remain fairly good. 

Natural gas prices are high due to the unseasonable weather conditions and may fall in the spring with lower than desired prices for investors. He is optimistic about pipeline development.

“My guess is that hurdles will be cleared on some of the pipelines that will remove some of the clouds of uncertainty over some of these projects in 2014,” said Hirsch.

The lower Canadian dollar is ensuring Canadian banks adopt a neutral position on increasing interest rates. Global economies have slowed, leading to commodity price softening which also affect the price of the dollar. However, a lower dollar helps internally with exports and manufacturing industries.

He said that the agriculture market is in an expansion mode, and expected farm cash receipts to break records in 2014.

“Sometimes the urban audiences forget about the important contribution agriculture has in this province,” said Hirsch. “Agriculture has been on a cyclical upswing in the last little while; prices are better. As long as we get cooperation from Mother Nature, agriculture will be a leading sector in the province.”

Non-residential construction will continue to improve. Retail sales, restaurants and bars will increase sales; but more competition from bigger chains will make business challenging for small business owners.

“Alberta’s economy does offer some illusions; around what is happening in the labour marker, in inflation pressures and redistribution of wealth,” said Hirsch. “Overall… 2014 will continue to be a very good year for Alberta,” said Hirsch.

Hirsch is Alberta Treasury Branch’s chief economist. He has 20 years experience in the field and has published several books. For more info and economic info: see www.atb.com  or www.toddhirsch.com.