Look no further than your local building supply store and you will see what has happened with the cost of construction supplies. In the past year, everything from insulation, electrical, plumbing, drywall, wood, and steel had whopping price increases. Some lumber prices have more than doubled, stimulated by strong residential construction, low interest rates and COVID induced mill capacity limits. Hot rolled steel prices are at a 13 year high driven by supply shortages and an increase in steel demand. As COVID-19 vaccines roll out globally, economic optimism and corresponding investment has taken off. Metal building manufacturers are reporting deliveries extended out to the 15-20 week range and open web steel Joist fabricators are booked out to the fall! A strong US housing market is also affecting fiberglass supply – as fiberglass manufacturers shift production to residential batt and blown-in insulation, metal building insulation laminators are experiencing fiberglass supply shortages.
Data
The Alberta Government’s most recent Economic Review revealed a significant increase in non-residential building permits for institutional, governmental, and commercial projects. Although consumer confidence is still below the national average, it has returned to its pre-COVID level.
As oil pricing has steadily increased and the WTI-WCS price gap has narrowed, the number of oil rigs drilling in Alberta remains 30% lower than a year ago. Capital spending in the oil and gas sector is expected to be 31.5% lower than in 2019 – not great news for a province built on oil.
Alberta Treasury recently updated the Alberta Activity Index (AAX) to include January data. The AAX is based on 9 monthly indicators including items such as employment, earnings, retail/wholesale, manufacturing, housing starts and oil production. The Government of Alberta data (see table to the left) indicates that activity has substantially rebounded from the decline of the past year but has not yet resumed to the pre-pandemic level.
Economists are predicting a K-shaped recovery: Not all companies or workers will experience the same opportunity. Businesses that operated without interruption will have the financial ability to invest and higher wage workers who continued to work will have the means to consume and spend. On the other end of the spectrum, companies that lost a significant amount of their revenue, or were shuttered, and lower wage workers who lost their jobs will continue to struggle.
On the Horizon
RBC is projecting that all provinces, with the exception of Alberta, Newfoundland and Labrador, will recover from their 2020 GDP loss but will still remain below pre-pandemic levels. Despite the deep economic trench that Alberta needs to climb out of, ATB forecast a 4.1% growth for 2021.
Looking Forward
As more of the population is vaccinated and business can resume operations, it opens the doors to increased investment and consumption. Unfortunately, five years of business investment retraction will have a long-term effect on the Province’s productivity and income growth, which will extend the time it takes to fully recover and will position Alberta behind many other provinces. The challenge for the UCP will be to attract job growth in both the skilled and non-skilled sectors while diversifying the economy.