Is Ontario Going To Have GDP Growth Over 2.0% In 2015? Surly Says No

Surly Hamilton follows the Ontario GDP reports from the finance ministry quite carefully. We were quite skeptical when the current budget document predicted GDP growth of 2.7% for Ontario in 2015. For the first two quarters of 2015, Ontario posted 0% growth in the first quarter and 1.4% in the second quarter (annualized).

So that's roughly 0.7% for the first half, which would require growth in the second half of 4.7% in order to reach the 2.7% prediction. In November, that seems very unlikely.

Now Ontario's financial accountability officer (sort of like the federal PBO) is predicting that the Ontario Liberal promise of balancing the provincial budget in 2017-2018 is unlikely. Part of this reason is that the officer is predicting growth of 2.0% for 2015. Which strikes me as also optimistic as it would require growth of 3.3% in the second half to reach. Given the weakness in Ontario employment growth lately and in the US economy, Ontario's principal export market, good GDP growth in Ontario seems extremely unlikely. The 2015 budget document also predicts GDP growth of 2.2% in 2016, which while more plausible, also seems unlikely to be reached.

Ontario has population growth of around 0.9% per year, so any economic growth beyond this requires productivity growth that Ontario has been unable to generate as it shifts to a service based economy from a manufacturing based economy. 

2015 Quebec First Quarter GDP Up 1.6% Annualized

Somewhat surprisingly, Quebec reported GDP growth in the first quarter of 1.6% (annualized). That compares to the now revised 0.8% drop in Canada overall and the -0.2% GDP growth for Ontario.

Both exports and imports declined:

"In the first quarter 2015, exports shrank (-2.9%) after four consecutive increases, solely due to international exports of goods (-7.2%), as all other components posted gains. Total imports contracted 3.2%—imports from other countries dropped by 3.8% and those from other provinces by 2.0%."

Considering that the second quarter GDP for Canada was announced as -0.5%, it will be interesting to see how the various provinces do. Will Ontario print a more Quebec like number? Will Alberta have even worse numbers than in the first quarter?

Quebec Balances 2015-2016 Budget, Ontario Obviously No

We won't know the Ontario numbers for 2015-2016 until the budget is released, but I wanted to note that Quebec has plans to balance their budget in 2015-2016. Ontario's certainly won't be balanced, although the Liberals have been planning for many years to do it in 2017-2018.

Quebec's 2014-2015 deficit was only $2.35 billion, way less than Ontario's $10.9 billion deficit adjusting for population and GDP. Ontario's 2014-2015 is also significantly higher than the federal deficit.

Obviously Quebec has controlled expenses to a much greater extent over the past few years (Ontario's 2014-2015 is actually bigger than the 2013-2014 deficit which in turn was bigger than the 2012-2013 deficit).

Quebec's debt to GDP ratio will peak at 54.9% this March and start to decline with this budget. Ontario's will continue to rise although I'm skeptical it will ever match Quebec's. According to Wikipedia, Ontario's debt to GDP ratio was 37.4% in 2013, although that's obviously higher now.

Canada GDP Growth Estimates Cut, What About Ontario

The IMF has cut Canada's growth estimates:

"Canada’s output is expected to increase by 2.2 per cent this year and 2.0 per cent in 2016, the Washington-based IMF said in its spring World Economic Outlook released Tuesday.

In January, the global lending body predicted growth of 2.3 per cent in 2015 and 2.1 per cent next year."

That's not a big cut, but I think that's optimistic for 2015. It is interesting that 2016 is only 2.0 considering the poor first quarter 2015 number.
 
Now the Bank of Canada has cut as well:

"The bank now says the Canadian economy will grow 1.9 per cent this year, down from the 2.1-per-cent pace it forecast in January, according to its latest quarterly forecast, released Wednesday.

The projection is based on no growth in the first quarter, and annualized rates of 1.8 per cent, 2.8 per cent and 2.5 per cent over the following three quarters as exports, business investment and job creation rebound."

A prediction of 1.9% seems reasonable to me. The quarterly numbers are certainly interesting as the BoC assumes a snapback from zero percent growth in the first quarter to 1.8% in the second (which isn't in itself impressive). I think the big question mark for everyone is what growth in the second quartet going to be like. Is the first quarter zero growth a weather related anomaly (some predictions in the US like the Atlanta Fed are also low) or will it continue in the second quarter?

For Ontario, with a federal GDP prediction of zero, even with Alberta doing poorly, Ontario by virtue of its massive size can not have that high a number. Probably even more important for Ontario is what the US does in the second quarter. RBC had a March prediction of 3.3% GDP growth for Ontario which I don't think is going to be made now. Bizarrely Toronto still had year over year house price increases of over 10% in March. Ontario's economy is doing some strange things and the second quarter is going to be key. 

US Revises 2014 Fourth Quarter Growth Down, Not Great For Ontario

Fourth quarter GDP in the US was revised down to 2.2% after a strong 5.0% number in the third quarter. Evidently the US economy isn't as strong as some had predicted.

What's that mean for Ontario? Now 2.2% isn't terrible, but there seems to be a media and Ontario provincial government narrative (see Toronto Star columnist Martin Regg Cohn for both) that strong US growth will propel Ontario's GDP growth to impressive levels.

With Ontario's manufacturing sector cratering, the thesis that strong US growth will spill over into Ontario makes less and less sense. And if US growth isn't that fantastic, that further undercuts the thesis that great growth is just around the corner in Ontario.

To be fair, the dollar dropping likely will have Ontario consumers switching from foreign tourism and the like and switching to instead buying goods and services in Ontario. That will give a boost to provincial GDP.

Will Ontario's Cold Winter Weather Affect 2015 First Quarter GDP?

At the risk of sounding like Zerohedge.com and their fascination with winter weather and US GDP, I'm wondering about the effects of the record cold this winter in Ontario will have on first quarter GDP. Last year we had a similarly cold winter and ended up with a weak first quarter GDP number of 0.6% (annualized). Ontario's population growth has been around 1.1% lately so that means that per capita GDP actually declined.

GDP in 2014 did bounce back considerably to 4.0% in Q2 and 3.2% in Q3 (again annualized) which is excellent by Ontario standards in the past ten years. US GDP growth in the first quarter of 2014 was weak at -2.1% which no doubt affected the Ontario economy, although maybe the weather did too.

This year January was probably worse than average weather wise and February has certainly been colder than average and with the Great Lakes mostly frozen over, March could be colder than average too. Is that enough to have an effect on Ontario's GDP number? Less people will be going out with the cold and that could effect bars and restaurants, although that's not that big a part of the economy.

US growth is obviously a more important factor. The latest prediction of US first quarter growth is 2.7%, which is considerably more than the -2.1% of last year, so that should have a positive effect on Ontario growth (although the US prediction has declined somewhat of late). Ontario's January employment numbers were just meh with only a few thousand jobs created so the quarter isn't starting out with a band. Could the cold affect the February numbers? Hiring decisions could be pushed back by the cold.

RBC has predicted in this PDF, that Ontario's GDP growth would be a healthy 3.1% in 2015. I'm skeptical and a weak first quarter could make that number hard to achieve.

Ontario January 2015 Employment Numbers

I've meant to get around to looking at the latest employment numbers for Ontario. Canada added a decent 35.4K jobs in January compared to the month before. Ontario not so much.

Ontario added a meager 1300 jobs in January, although that was an improvement over the last two months where Ontario actually lost jobs. That means over the last three months Ontario actually lost 43.4 thousand jobs, which makes for a pretty poor three month period. Employment numbers can jump a lot from month to month, but this poor performance over three months has to be taken seriously and detracts from the narrative that Ontario is growing well (and can't be great for the fourth quarter of 2014 GDP number).

The composition of the jobs also changed detrimentally last month. Ontario lost 23.2 thousand full time jobs while gaining 24.4 thousand part-time jobs. This would seem to be continuing a trend where in Ontario the proportion of jobs that are part-time is increasing.

Interestingly, over four months Ontario has actually lost 19.1 thousand full-time jobs, while the working age population increased by 31.9 thousand. Part-time jobs did increase by 24.4 thousand over that period.

One has to think that these low job numbers are going to have an effect on GDP, and income and sales tax revenue for the province. RBC is predicting Ontario will have 3.1% GDP growth in this PDF. I'm skeptical. Considering the low dollar hasn't done a lot to stimulate job growth over the past four months, I don't see a lot of job growth in 2015. That report is also predicting employment growth of 1.4% in 2015.

A Closer Look at Ontario's June 2014 Employment Numbers

A blogged briefly about the poor Ontario jobs numbers for June, but I said I would take a closer look so I am.

Total employment in June from Statscan was 6,900,800. That was down -0.5% from June and up 0.1% from the previous year. Considering that population growth was around 0.9% for Ontario currently, that's quite poor performance and problematic for tax revenues and GDP growth.

Here's the population numbers for the last six months:
December 11,267,600
January, 11,278,400
February 11,287,300
March 11,298,600
April11,313,900
May 11,323,300
June 11,336,000

Employment
December 6,876,800
January 6,882,800
February 6,888,900
March 6,902,300
April 6,919,900
May 6,934,700
June 6,900,800

Full-Time Employment
December 5,577,500
January 5,600,600
February 5,605,900
March 5,599,400
April 5,625,200
May 5,594,800
June 5,575,900

Part-Time Employment
December 1,299,200
January 1,282,200
February 1,283,000
March 1,302,900
April 1,294,000
May 1,339,900
June 1,324,900

Looking over the past six months, the numbers aren't great. Population is up 0.61% compared to overall employment up 0.35%. Considerably more disturbing is that full-time employment over the past six months is actually down 0.03%. That's not good for Ontario's GDP growth over the first half nor is good for provincial tax revenues, as Ontario's income taxes are highly reliant on surtaxes targeted towards those earning above the median.

Part-time was at least up 1.98%, although that indicates the jobs Ontario is creating are low paying part-time jobs that as mentioned earlier, don't pay a lot in provincial income taxes.

May 2014 Canadian GDP Predictions

On Wednesday, Statscan reports May GDP (which seems a little late). Consensus seems to be 0.3% GDP growth according to the Globe and Mail. The first quarter's GDP growth was a mediocre 1.2% (annualized) so 0.3% wouldn't be bad. We'll here the numbers for the US second quarter this week too, though considering how much the first quarter's was eventually revised (to -2.9%) how reliable the first estimate is is definitely a question.

For Ontario we won't know what the first quarter's numbers are until August. However May will shed some light on what the Canadian second quarter numbers will be and what the eventually Ontario number will be.

Catholic Elementary Teachers and McGuinty Come to Two Year Agreement

The Catholic elementary teachers union and the McGuinty government have come to a two year agreement. From the Spec website:

The union representing 45,000 Catholic school teachers agreed to a two-year wage freeze and three unpaid “professional development days” in the second year of the contract, which Broten said would amount to a 1.5 per cent pay cut.
The province has also agreed that the wage freeze and three unpaid days will also apply to principals and vice-principals.

So only a two year freeze, plus trading days off for a pay cut for a single year. Not bad, but an exercise in kicking the can down the road. Perhaps McGuinty anticipates not being in office then. Unfortunately with the deficit as high as it is and inflation as low as it is, a three year freeze (which McGuinty was originally seeking) would have done a better job of aligning teacher salaries with what the Ontario revenues can pay. However sick days appear to have been fixed:

Under the agreement, teachers will no longer be allowed to bank sick days and their allotment of 20 sick days a year will be cut to 10, Broten said.

Can't complain about that and certainly not a case of kicking the can down the road. 

However what hasn't been made explicit in the article is whether teachers are getting frozen on the grid. That's the increases that new teachers get each year until they reach the maximum. As this post of mine makes clear, freezing the grid actually saves more money than just freezing the pay levels, but allowing teachers to still move up the grid. This quote in the article suggests that the grid isn't frozen (despite McGuinty originally asking for it):

Union president Kevin O’Dwyer said the savings will ensure that beginner teachers don’t bear the brunt of austerity.

If one union has agreed to this, that puts a lot of pressure on the other unions to accept the same concessions. I consider this a Pyrrhic victory for the teachers unions. Only a two year deal and no grid freeze (assuming it isn't frozen) isn't bad. For the Ontario economy, a loss. To get the deficit under control a 10% pay cut plus a three year freeze (without grid freezing) is necessary, especially considering 2012 is looking week, both from a GDP growth perspective and more importantly a GDP per capita growth perspective. Unpalatable, but there are lots of unemployed teacher college graduates in Ontario that would take a job if teachers left from such a cut. Which I doubt they would.

When Will Alberta's GDP Exceed Quebec's?

I looked at the provincial GDPs on Wikipedia, and for 2010, Quebec's was $319,348 versus $263,537 for Alberta (millions). If Alberta outgrows Quebec by an average of 3% a year it will take seven years for Alberta's GDP to exceed Quebec's. If Alberta outgrows Quebec by an average of 3% a year it will take ten years. I should probably update these with the 2011 numbers, because I'm guessing Alberta had some healthy growth versus weak growth for Quebec.

Canada's Second Quarter GDP Growth 1.5% in 2011

I'm always interested in quarterly rates of GDP growth, especially comparing the federal versus Ontario's. Here's an article reporting the Bank of Canada's estimate for the second quarter:

The Canadian economy grew at a slower-than-expected pace of 1.5 per cent in the second quarter, the Bank of Canada estimated Wednesday as it slashed an earlier forecast that looked for growth of two per cent.

However, the central bank said it expected the domestic economy will grow slightly faster in the second half of the year than thought earlier, logging overall annual growth of 2.8 per cent for 2011, down slightly from an earlier estimate of 2.9 per cent.

That's pretty weak and considering the events of the past week I can't see the third quarter being strong. The big question is how Ontario did. Was Ontario above or below the national average. I'm guessing slightly above, but the high price of oil during the quarter could not have helped.

Ontario Had 3.2% First Quarter GDP Growth in 2011

One stat that I think that should be found easily on the web is Ontario's GDP growth quarter by quarter and as up to date as possible. The Ontario numbers, when they come out, are usually way behind the federal one. This Star article reports the first quarter number for Ontario, which I think is after the feds have reported their second quarter (which I don't have on hand, but I remember is mediocre):

"The finance ministry said Ontario’s economy grew at an annualized rate of 3.2 per cent in the first quarter, the seventh consecutive gain since the recession."

Now I'm curious what the second quarter number will be, especially after hearing the fed numbers. Unfortunately, we probably won't hear that number until after the next election. I'm guessing based on the feds it won't be good.

Some day I'll collect the Ontario quarterly numbers and plot them over the last fifteen years or so. I'm sure that would be quite interesting.