With spring in the air, it’s time to ask what the Yukon economy is going to look like this summer.
Economic forecasting is notoriously tricky, since the economy is the product of millions of decisions by companies, workers and consumers. Economists on the television news often end up making the weather forecasters look good.
As the old joke goes, economists predicted seven out of the last three recessions.
The challenge is especially big in a small place like the Yukon, where a change in a federal funding program or a single mine’s business plan can blow a big hole in an economic model.
Nonetheless, it’s worth looking at the big trends since they may affect Yukoners’ decisions on a wide range of economic topics from job searches to buying a house. The recent Yukon budget was accompanied by a comprehensive economic forecast, which provides lots of food for thought.
The forecast’s outlook is bullish. It has our economy growing at 4.4 per cent in 2018, double the rate the federal budget predicted for the national economy. Unemployment is expected to be low, continuing the trend from 2017 when we were the lowest in the country. That’s impressive, considering we also had the highest percentage of the population in the workforce.
The average weekly earnings in the Yukon in the first 11 months of 2017 was $1,093, behind only Alberta and the other territories.
The factors driving this growth are not hard to identify. Our biggest economic driver is the federal transfer. The money plane will keep flying from Ottawa to Whitehorse, and even plans additional deliveries of new infrastructure money. In addition, the Yukon government is spending the rest of our rainy day fund and going into debt this year, which will give our surging economy some extra stimulation in the near term.
The territorial government will spend $51 million more than it brings in this year. Its spend in fiscal 2018 will be a record $1.338 billion, which is a whopping figure when you consider our total economy is around $3 billion. It works out to almost $35,000 per person.
Government may be our main economic engine, but the mining industry is also contributing strongly to growth. Exploration is forecast to be over $150 million, a bit lower than 2017 but still much stronger than any year since 2012. Development spending on new mines is expected to pop dramatically, roughly tripling in 2018 to just shy of $250 million.
If you’re wondering about tourism, the outlook there is more muted. There were more tourism jobs, but average hourly pay in tourism has declined for the last four years. This is due in part to faster growth in lower-paying food and beverage jobs. Overall, tourism represents 14 per cent of Yukon jobs but only around four per cent of the economy.
With record Yukon government spending and the mining industry on a roll, you don’t need a 300-variable economic model to predict that the summer is likely to be lively. Or to predict that the laws of supply and demand are likely to provide some upward pressure on prices.
Indeed, the forecast predicts that inflation will go up from 1.7 per cent in 2017 to two per cent in 2018. This is relatively minor, but will chew away slightly at our purchasing power after the 15 previous years when the Yukon boasted lower inflation than the Canadian average.
The forecast also says “rising employment and a tightening labour market in Yukon puts upward pressure on income levels.” That’s good news for for employees, but not for most employers.
Supply and demand appear to be affecting housing too. The forecast says our population grew by 597 in 2017 and that population growth is expected to continue. Yukon Statistics Bureau data shows vacancy rates in Whitehorse have been trending down in recent years. And the weighted average house price in Whitehorse rose 4.1 per cent in the first three quarters of 2017 compared to the same period the year before. That’s more than double the rate of inflation.
The forecast predicts the population will be around 3,000 people higher in 2022 compared to last year. We’ll see if housing supply keeps up.
No economic forecast is complete without looking at the risks. Like the weather, a forecast is rarely exactly right and it’s good to know what factors might push growth faster or slower. The forecast identifies significant “upside risks.” That’s economist jargon for things that might make the economy grow even faster than expected, such as if Alexco’s Keno Hill property or BMC’s Kudz Ze Kayah operation move faster than expected.
In addition to the usual uncertainty around resource prices, interest rates, the value of the Canadian dollar, the downside risks include the alarming things we’ve been seeing on the international news lately. We’ll see how the NAFTA negotiations, possible international trade wars and lower U.S. corporate taxes affect the Yukon. The forecast also flags the possibility that with unemployment so low, a bigger proportion of fly-in/fly-out workers may be needed for the new mines on the horizon.
Perhaps the biggest takeaways are how tight the labour and housing markets are likely to be in 2018. It might be time to dust off those income-suite plans you didn’t get around to building during the 2011 housing shortage, if you can find a contractor to build it for you.
Keith Halliday is a Yukon economist and author of the MacBride Museum’s Aurore of the Yukon series of historical children’s adventure novels. He is a Ma Murray award-winner for best columnist.