Blogs are opinion pieces and reflect their author’s views

Alberta’s Manufactured Recession

Written by: Philip Cross

Since the end of the oil boom in mid-2014, Alberta has shed 113,000 payroll jobs <sup>1</sup>. However, this conjures up an image that job losses were concentrated in searching for and extracting oil outside of urban areas. In fact, only one-third of the losses occurred in oil and gas mining. It will surprise many that there has been a marked downturn in Alberta’s manufacturing industries after years of rapid growth. Diversifying into manufacturing alone did not insulate Alberta from an oil bust, since many of these industries are closely-linked to oil and gas.

Since peaking at 2,082,000 in the third quarter of 2014, Alberta’s employment has fallen 5.4 percent to 1,969,000 just two years later. Not surprising in view of the collapse of oil prices, job losses were most pronounced in the mining industry, which in Alberta consists almost entirely of oil and gas extraction and exploration and drilling for oil and gas. Employment in this sector shrank from 134,000 to 97,000 over the past two years, a drop of 27.6 percent. Over three-quarters of these cuts occurred in exploration and drilling. Job losses were minimal in oil and gas extraction, a reflection of how production continued to grow in the oil sands despite lower prices, as long-planned projects began to come on-line. Construction jobs posted a sizeable 15 percent drop, from 228,000 to 194,000, as a result of fewer housing starts of new homes and less business investment.

However, job losses in Alberta’s factories also played an important role in Alberta’s recession. Manufacturing employment fell from 140,000 to 117,000 over the past two years, a net reduction of 16.4 percent. The losses were particularly severe in the durable goods industries which supply capital goods such as machinery, pumps and pipes to the oil patch. Employment in machinery and metal fabricating fell by 15,000 after the oil and gas industry cut orders as it slashed capital spending. By comparison, employment was stable in non-durable industries such as food, chemicals and petroleum refining.

The magnitude of job losses in Alberta’s manufacturing industry partly reflects how fast its factories expanded during the oil boom. From a low of 114,000 after the 2008-2009 recession, manufacturing employment in Alberta surged by 22 percent over the next five years.

The very fact that Alberta’s manufacturing sector was expanding before 2014 made it unique in Canada. Alberta was the only province posting more factory jobs in the decade ending in 2014. Growth was widespread, with increases in capital goods buttressed by industries such as chemicals and petroleum refining which processed the increasing amount of biumen coming from the oil sands. As a result, Alberta’s share of all factory jobs in Canada rose from 6.6 percent to 9.2 percent (its share of sales was even larger at 12.9 percent, reflecting the high price for refined petroleum). While the capital goods industries have returned to their size before the boom started in 2009, the gains in chemicals and oil refining have proved more durable.

Alberta’s economy diversified into more manufacturing over the past decade. However, many of these industries remained heavily-dependent on Alberta’s oil and gas industry for sales growth. Now these industries need to find new markets outside of Alberta or wait for growth to resume in its domestic market.

<sup>1</sup>All data are from Statistics Canada’s Survey of Employment, Payroll and Hours.