Canada: how much of a slowdown should we expect?

I am going to post a BBC article here that gives an anecdote about western Canada and how the boom in oil and commodities is causing economic problems there. Make of it what you will, but my bottom line is that Canada is neither immune from global pressures or from the commodities savaging.  This type of thing will com to an end.

Marshall Auerback has said to me that the Canadian economy is much less dependent on commodities than it once was. However, in my recent consulting experience there, it seemed very leveraged to commodities especially as regards employment, with many young people moving out west to take advantage of the high wages. One Canadian company executive told me last year that they were struggling to get entry level personnel because McDonald’s was paying $14 an hour in Alberta. I wonder if that’s the case today.

I meet Jaz at the Centre of Hope homeless drop-in centre in downtown Fort McMurray, Alberta, on a freezing cold morning.

She comes here during the day, but says she spends the nights in the woods and offers to show me where, for a fee. I explain that BBC policy forbids it, but she takes me anyway.

We stomp through the snow along the Athabasca River, past apartment blocks. She leads me through some thinly spaced trees to a campfire. A bit further on is the tent she uses to store food, and a second tent she sleeps in.

Jaz, 34, originally from the neighbouring province of Saskatchewan, is fairly media-savvy. With a smile, she describes being photographed for National Geographic magazine a few months ago. That was not her first media encounter.

Fort McMurray has attracted a lot of attention as the boomtown at the heart of Canada’s oil sands rush.

Established as a trading post in the late 19th Century, by the 1960s Fort McMurray had grown to a modest town of about 6,000.

With the commercial development of the oil sands industry in the late 1960s, the town grew to 32,000 in 1982.

Its current population is more than 65,000, with an extra 18,500 people in the so-called shadow population – oil workers who live in hotels or residential camps on the outskirts of town.

Population growth has averaged 9% a year for the past six years, and soared to 16% last year. Local police say they are working on the assumption that the population could reach 250,000 by 2030.

“We’re bursting at the seams. We’ve got this massive population growth, and we don’t have the infrastructure to accommodate it or service it,” says Fort McMurray’s mayor, Melissa Blake.

Working town

Ask any newcomer what brought them to this remote part of northern Canada, and the answer is always the same: money.

“People come here for the work, the whole town runs on the plants,” says John Keegan, an oil worker who arrived from Ireland almost 30 years ago.

The workers come mostly from other parts of Alberta, and from depressed parts of eastern Canada such as Newfoundland.

To attract and keep workers in a remote community where the jobs are often dull and repetitive, wages are high. Truck drivers can make C$175,000 ($146,000, £95,000) a year with overtime.

Teenagers working at a local fast food chain can make C$14 a hour – almost twice the minimum wage.

Housing costs are among the highest in Canada, with a small bungalow costing from C$550,000, about C$100,000 higher than in large urban centres such as Calgary or Edmonton.

Rent for a small apartment can range from C$1,800 for a one-bedroom flat.

“A lot of people do come here thinking the streets are paved with gold and that they’re going to walk into the big paying jobs,” says Mayor Blake.

“But the housing market is inaccessible to those that don’t have the highest income.”

The article goes on to recount from a very personal level how everything is expensive there and that things have become quite “stressful.” Alcoholism and cocaine are a problem. While this is merely an anecdote from one BBC reporter it describes an economy that is severely strained by events tied to commodities.

I think this type of thing is going to end soon. What effect this will have in Canada overall, in provinces like Quebec and Ontario, I don’t know.  Either way, if I were from Fort McMurray, I would not be happy with the picture the article paints of my town.

Source
Canada boomtown under pressure – BBC News