May’s GDP Results. Alberta & Saskatchewan Outlook.
Published July 31, 2008
Canada’s May 2008 GDP Results
If the Canadian economy isn’t in the toilet, it is certainly looking very wobbly on the seat. May’s GDP result of -0.1% after April’s 0.4% growth means the economy is a little unstable. The fact that most of the economists at the major banks were unable to forecast May’s results indicates that these are still very uncertain times. (StatsCan’s May 2008 report can be found here.)
May’s results threaten to draw down the second quarter’s overall GDP. Should this happen, the Canadian economy will be in a technical recession.
StatsCan’s graph (source link here) below shows the ups and downs of 2008 so far.
Somewhat surprisingly, despite increased oil extraction output, the energy sector slipped 0.9% in May (source link here) due to natural gas inventory adjustments and crude oil “production difficulties”. StatsCan reports that contract drilling was down in May due to unseasonal weather. Nonetheless, oil & gas extraction remains at similar levels to those of 2006.
Manufacturing edged up 0.1% with computer and electronic products making a notable gain. This is worth mentioning because it suggests that Canadian companies are investing in their production capabilities, enabling them to realize cost-savings and increase their profitability.
Oil & Gas and Mining
A StatsCan statement that should arouse interest in Alberta was “Manufacturing of petroleum and coal products increased significantly for a second consecutive month, returning to a more normal level of production, following the completion of maintenance and repairs by some refineries in April.” The oil refineries made hay in May recording one of their best months since mid-2003, and increasing output by 7% over April, 2008.
Natural gas distribution has grown in value by 13% since its low-point of April, 2006. An additional 10% growth will have it back to the heady days of 2002.
Of most interest to Albertans and Saskatchewanians is StatsCan’s statement that “Manufacturing of machinery equipment for mining and oil and gas extraction posted a third consecutive monthly increase.” Three months of accelerating production of extraction equipment can mean just one thing: more drilling, and more mining.
The commodities boom has been making headlines for months now. Even though mining is down 4% compared to May 2007, it has been holding steady since January. And Grande Prairie & Lloydminster have been told to be ready to hit the ground running in September: there’s oil & gas to be found.
On July 25, 2008 in its article Oil patch springs $5-billion gusher, The Globe and Mail reported that ” Record commodity prices have given Canada’s largest oil and gas companies war chests filled with ready cash that’s likely to go toward acquisitions, share buybacks and increased drilling over the rest of 2008.” Just a week earlier, the paper reported on a $610-million oil and gas rights sale in north-eastern BC where large reserves of unconventional shale gas reside. That was the week Royal Dutch Shell spent $5.23-billion buying Duvernay Oil Corp, acquiring its stake in that region’s shale gas.
Alberta & Saskatchewan Business Outlook
With September poised to see increased activity in the oil and gas fields, and the commodity boom unlikely to lose steam any time soon, Alberta & Saskatchewan are looking like the best provinces to be in.
The real estate market is deflated and mortgages are harder to get. The people making money (i.e. those working in the oil & gas and mining, and affiliated sectors) are less likely to be investing in real estate, so will probably turn to home renovations. Kitchens, bathrooms, flooring, and some furniture will become popular purchases.
Eating out will not decline, but it might shift. In other words, expensive steaks three nights a week could evolve into expensive steaks one night a week, and hamburgers the other two nights. People will still go to the movies and buy alcohol. They will still buy chocolate and ice-creams. They will just do it less frequently.
Vacations will be trimmed from flights to Europe to inexpensive all-in packages to Vegas or Mexico. Driving holidays are less likely to cross time zones, and more likely to cross counties.
Business travel has shrunk, and will shrink some more – it’s a good time to own shares in telecoms.
Suggestions for Strategy
Many companies will soon be starting their 2009 business planning. Flexibility will be key for the coming twelve months.
Fortytwo Consulting advises analysing based on best- and worst-case scenarios, then plan for the middle ground. Set your goals and objectives so they are measurable on a monthly basis, providing you with the ability to accelerate or slow your work efforts as necessary. Determine your best indicators and set up a dashboard for monthly monitoring of what the future may bring, allowing for adjustments to your strategy in advance.
Depending on your company’s positioning and generic strategy, you might consider expanding your product offerings to expand your price offerings. Alternatively, now might be a good time to reduce some of the products or services you offer, and pare back to your core products. Many environmental factors will influence which is best for your company.
The best thing you can do is increase your marketing efforts. During periods of uncertainty, fortune favours the brave.
— Michael Hogan