September 1, 2011 – Weekly Market Update

Wed, 31 Aug by Dale Russell

Our Other Economy

We analyze and discuss the energy industry endlessly for signs that all is well in central Alberta.  But, there is another, very important economic influence in central Alberta that we often overlook.  Farming has been a major part of our local economy since Alberta was settled in the late 1800’s.

When farmers do well, the income they generate trickles into the economy in numerous places and helps fund an abundance of service jobs.  World grain production has slipped in recent years while demand has increased with population growth.  Like all commodities, when supply decreases and demand increases, prices go up. 

Alberta Farmers Anticipate Strong Crop Production – ATB Financial

Farmers in Alberta expect to harvest larger amounts of wheat and barley compared to last year, as well as a record amount of canola. Statistics Canada reported on Wednesday that according to a survey of 15,200 farms conducted between July 25 – August 2, production of all three principle crops in Alberta (spring wheat, barely and canola) is expected to rise from last year. This rise in production is thanks partly to hot, dry weather that has offset production losses due to adverse weather conditions at the start of the year. Total wheat production is expected to rise 3.8%, while barley and canola production are expected to climb 6.5% and 6.0% respectively.

This year is gearing up to be a strong crop year for many farmers in Alberta as relatively positive growing conditions across most regions of the province combined with fairly robust prices may lead to healthy jump in crop receipts. The healthy harvest in Alberta is positive news not only for farmers but also the entire Alberta economy as a strong influx of cash from crop receipts will have positive trickle down effects on the broader economy. Farmers in Saskatchewan also expect crop production to rise year despite a tough start to the 2011 crop year. Farmers in Manitoba, however, expect large declines in production of all three crops as very wet weather conditions prevented many farmers from getting their crops seeded.

August 25, 2011 – Weekly Market Update

Thu, 25 Aug by Dale Russell

Is Your Glass Half Empty or Half Full?  We are bombarded daily with bad news from all over the world.  Consumer confidence is directly impacted by that media.  Consumers make lifestyle decisions based on how they feel.

There is always good news and positive events going on in our world, especially in Canada and Alberta.  We are truly blessed to live here and benefit from the rich resources we own just because we live here.  If we look for the good news and try to look at the glass as half full, our lives will be more happy and fulfilled than those that choose the other option.

Prices Down In July, by Todd Hirsch, Senior Economist, Alberta Treasury Branches

Even small bits of good economic news are welcomed these days, and that news was delivered by Statistics Canada’s report on the Consumer Price Index this morning.

Prices for typical consumers rose by 2.7% year-over-year in July, down from the 3.1% annualized advance in June, and 3.7% in May. The national CPI increased in June primarily because of higher prices for gasoline and food purchased from stores.

In Alberta, annual consumer price inflation also eased up a bit, falling to a year-over-year increase of 1.9%. Many of the factors that drove prices higher nationally were present in Alberta as well. Energy prices rose 14.1%, and gasoline jumped by 23.0%. Food prices also rose, especially fresh vegetables (+7.7%) and meat (+6.5%).

Helping keep overall inflation in Alberta in check were price decreases for women’s clothing (-9.0%), footwear (-5.2%), and purchasing and leasing of new motor vehicles (-2.7%).

The softer inflation figures nationally will certainly support the Bank of Canada’s likely decision to keep interest rates where they’re at for an extended period of time. With all of the other more troubling economic headwinds hitting the Canadian economy from the US and Europe (see Economically Speaking), the Bank of Canada must be viewing the tame inflation figures with some sigh of relief.

On the other hand, the fact that inflation appears to be ebbing in Canada could also be considered one more piece of bad economic news. It does suggest that consumer sentiment is perhaps waning a bit, prompting shoppers to hold back on purchases and forcing retailers to slash prices. For every glass that is half full, the other half is still empty!

 

August 18, 2011 – Weekly Market Update

Fri, 19 Aug by Dale Russell

We all know that oil and gas exploration and production form a very large and important part of the central Alberta economy and the price of oil and gas dictate the amount of activity our local energy industry participates in.

Any time the world economy falters, oil and gas prices are affected.  It’s a constant guessing game to know where prices will be next week and next year.

Fortunately, the last couple of paragraphs below offer some hope for continued stable prices and therefore a stable local economy.

Oil Price Swing by Todd Hirsch, Senior Economist, ATB

Albertans are used to watching the price of crude oil rise and fall, but even seasoned veterans of the oilpatch were paying attention to the wild price gyrations witnessed this week.

Based on the price of West Texas Intermediate crude, a benchmark commodity traded and priced on the NYMEX, oil prices have fallen nearly 20% over the past few months. After hitting a recent high of $US 113 per barrel back in April, this week oil fell to below $US 80. If prices stayed below this point for a long period of time, some of Alberta’s oilsands projects may be reconsidered—or possibly shelved.

Behind this recent price volatility are several factors. The downgrade on US government credit sent shockwaves through markets all around the world, including stock markets and commodities. Oil was one of the casualties (although gold hit record highs).

Also, revisions to US economic data show that the 2008 recession was far deeper than first thought. And numbers for 2011 are not encour-aging. The prospect of another recession in the US economy helped push oil prices lower.

By the end of this week, oil prices had recovered to above $US 86 per barrel (at noon trading). The volatility in stock and commodity prices this week is not necessarily being driven by market fundamentals, but rather by fear and uncertainty. That will subside.

On the supply side, nothing has changed. Oil is still costly to dig out of the ground. And emerging economies such as China and India still need plenty of oil (for now, at least). This suggests that once this recent bout of market volatility calms down, oil prices will calm down too, and should continue trading between $80-$100 over the coming months.

August 11, 2011 – Weekly Market Update

Thu, 18 Aug by Dale Russell

The central Alberta real estate market is chugging along about how we expected.  Until now sales have been up or at least equal to last year’s in most central Alberta markets.  It’s hard to predict how the most recent economic turmoil will affect the market, but there is always a silver lining – interest rates should remain low, keeping housing affordable.

Generally, the market is most in balance in Red Deer with the outlying areas still favouring buyers with ample supply and mediocre demand.  People moving to the area generally start in Red Deer where most of the jobs are.  There is still ample inventory in Red Deer and higher gas prices may be keeping people close to their jobs.

 The majority of sales activity still happens in the lower price ranges.  The upper end market continues to heavily favour buyers with ample supply and low demand which creates opportunity for those families looking to move up.

We believe the slight improvement in the market generally can be attributed to a more active oil industry that has caused population growth – increased demand.  New housing starts this year are lower which has helped keep the supply side of the market from getting too large – stable supply.

Very simply, the relationship between supply and demand dictates price movement and the health of the housing market.  CMHC defines a balanced market, where neither buyers or sellers have an advantage, as one where 25 – 30% of the inventory sells each month.

Red Deer – year to date sales are up 9.24% over the same period in 2010 – demand is up.  The number of active listings as of the first of August were down 20% this year compared to last – supply is down.  As a result, our sales to listing ratio in July was 22%, not quite high enough to support price increases, but much closer than we were a year ago – the market balance slightly favours buyers.

Lacombe – year to date sales are down slightly compared to last year – demand is down.  The number of active listings on August 1st were the same as they were last August – supply is equal.  The sales to listings ratio in July of this year was 17% – the market favours buyers.

Ponoka – year to date sales are up 24% over the same period in 2010 – demand is up.  Active listings are 9% higher than Aug. 1, 2010 – supply is up.  The sales to listings ratio in July was 11.5% – the market favours buyers.

Sylvan Lake – year to date sales are the same as 2010 – demand is equal.  Active listings on Aug. 1 were up 8% compared to Aug. 1, 2010 – supply is up.  The sales to listings ratio in July was 11% – the market favours buyers.

Blackfalds – year to date sales are up 25% compared to the same period in 2010 – demand is up.  Active listings on Aug. 1 were equal compared to Aug. 1, 2010 – supply is equal.  The sales to listings ratio in July was 13.6% – the market favours buyers.

The acreage market closely resembles the rest of the market with a sales to listing ratio of about 10%.  Sales at the high end of the price range are rare with most of the activity at the low end of the price spectrum.

August 4, 2011 – Weekly Market Update

Thu, 18 Aug by Dale Russell

The Economy is Still Fragile – thankfully the US government seems to have resolved their debt ceiling dispute which was causing economic concern around the world.  As you can see by the article below, Canada’s economic stability is still tenuous.  The good news is that the spring slowdown in economic growth is predicted to be temporary.  The other good news is that interest rates will likely stay low for a while longer, keeping housing affordable.

May Brings Showers – Dan Sumner, Economist TD Economics

Although it had been widely expected that the Canadian economy would pull back in Q2, preliminary indications are looking even more negative than the market predicted.

Canadian gross domestic product – the principle measure of overall economic activity – shrunk by 0.3% in May. That’s the largest monthly decline since May 2009, when Canada was mired in recession. The reading was much worse than the +0.1% growth called for by a consensus of economists, and signals that after expanding by 3.9% in Q1, the Canadian economy has really slowed down in Q2.

Although GDP information at the provincial level is only available on an annual basis, considering the largest driver to the downside at the national level in May was the mining, oil and gas extraction sector, the report doesn’t look good for Alberta. GDP in that sector plummeted 5.3% in May; however, the decline appears to largely be due to temporary factors like the slow spring beak up and wildfires in northern Alberta.

Other sectors dragging on economic growth in Canada in May were manufacturing and construction, while most service sector industries expanded during the month.

This morning’s report definitely surprised the market to the downside and taken along with the pull back in inflation observed last week, leaves room for the Bank of Canada to keep rates unchanged at its next meeting on September 7. However, as is often the case with monthly statistics, the overall trend in the Canadian economy appears to be clouded by one time events in this report.

The Canadian oil industry (and the resource sector in general) is an engine of growth in the Canadian economy right now, and over the next month or two, GDP will probably bounce back as the temporary factors weighing on GDP in May dissipate.