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Tracking Medicine Hat’s business cycle

It’s official. Canada’s biggest cryptocurrency mine is up and running in Medicine Hat. Construction of Aurora Sun, meanwhile, is well underway. Add in all of the commercial construction going on around town, and you can’t help but feel optimistic about Medicine Hat’s future prospects.

But is the optimism warranted? What does the data say? Lacking real-time gross domestic product numbers for the Medicine Hat Census Agglomeration (CA), we can look at housing starts, building permits, and employed labour force data to get a better sense of where we’re at in the business cycle.

New housing starts are a powerful indicator of a region’s economic health. People buying new homes tend to spend money on other consumer goods such as furniture, lawn and garden supplies, and home appliances. The rate of change in housing starts provides further information about in-migration, household formation, demand for homes, and the outlook for the construction industry.

Housing starts in the Medicine Hat CA trended upwards from 255 units in 1990 to 1098 in 2007. Housing starts then dropped precipitously in response to the global financial crisis and recession, reaching a low of 140 units in 2017. So far in 2018, including July data, housing starts are at 227 units, marking a bright spot in regional economic data.

Given that building permits precede housing starts, this particular data point can be used as a leading indicator for the construction industry. Overall, building permits saw a pattern that is counter to new home starts. Total year-to-date building permits were down across all categories in 2017, representing a potential falling off of activity going into the near future.

Although annual employment since 2001 does not provide a clear pattern of cyclical fluctuations, some patterns can be discerned from the employment data. Employment was 30,400 in 2001 and, similar to housing starts, peaked at 47,700 in 2007. Employment then fell to a low of 33,500 in 2012 and has been on the rebound ever since. The best estimate for 2018 is that it will likely be in the range of 36,500, down from 40,000 in 2017.

That said, a drop in employment after 2018 appears unlikely. Energy prices have rebounded, the new housing market is resurgent, there is the lack of global financial turmoil as in 2008, and the region is experiencing positive, albeit slowing population growth. In other words, 2019 should see a revival in employment prospects.

With a strong base in petrochemical processing, agriculture, and public sector and professional services, global trends add cause for further optimism. The slow and steady rebound in oil and gas sector activity, combined with new industries taking root in Medicine Hat, lends to the view that the business cycle has room to run through the remainder of 2018 and beyond.

This article was published in the Medicine Hat News on Sept. 26, 2018.