Low Fertility Rate

1971 was the last time in Canada where the fertility rate matched the replacement level. The fertility rate tells us how many hypothetical children a female between the age of 15 and 49 will have. The replacement level tells us where this rate needs to be in order to replace our aging population. In essence if the fertility rate remains below the replacement level for a long period of time as it has in Canada, the population will naturally begin to shrink without immigration. It is thanks to our high immigration levels that Canada’s population is actually growing rather than shrinking.

Although our population may be growing, it is still not growing fast enough to replace all the retiring baby boomers in the job market. This is not only putting extra pressure on corporate pension plans and the Canada Pension Plan (CPP) but also causing our unemployment rates to drop to record lows as our overall economy is thriving.

Low Unemployment Rate

Last month the Canadian economy added 27,700 more jobs causing the unemployment rate in Canada to fall to a record low 5.4%. This is following an April where the economy added a record 106,500 jobs. Although the job numbers of May when broken down aren’t as great as they are on the surface, for the month of April, the numbers were amazing from every angle and breakdown. Such low unemployment is amazing right? Yes in a sense it means wages will start going up and the general public will benefit in the short-term.

However, an unemployment rate that is too low also means businesses will struggle to find good talent to fill there roles and that eventually the businesses will not be able to perform at full capacity because of the lack of full employment. Businesses will instead need to scale down if they are not able to find the right people for these jobs. In a sense the Canadian economy will be performing so well it will burn out. Immigrants are the reason our GDP and economy are growing while allowing Canada to maintain a healthy unemployment rate. Without immigration, less people in Canada would be employed so less people would be spending there hard earned dollars in our local economy and thus it would be unlikely that Canada’s economy would be able to maintain it’s growth rate without coming to a crashing halt.

The US Unemployment Rate

Many people are quick to point out that the US unemployment rate is much lower than Canada’s so if they burnout problem is real then we must be still far away from that burnout level. There is 1 very important thing to note here, the US and Canada calculate there unemployment rates very differently. In both Canada and US the very basic definition of being unemployed is the same.

To be considered “Unemployed” a survey respondent must not have done any work for pay during a particular week of the survey month, must be available for work, and – most crucially – must have done something to find a job during the last four weeks. – The Globe and Mail

However where the key difference comes into play is what qualifies as doing something to search for a job. In the US only active searching qualifies you to meet this criteria whereas in Canada both active and passive (simply browsing through job listings) searching qualifies you for this. For more details on the differences you can read this Globe and Mail article.

Cognitive Diversity

Canadian are no stranger to diversity in the traditional sense. As a country we embrace different types of people, diversity and multiculturalism is a part of Canada. However, cognitive diversity is something many people do not understand. While someone that is born or raised in Canada with a diverse background adds significant value to the workplace, we all went to the same elementary and high schools and were taught to think the same way. That is not to say differences in age, gender and ethnicity do not provide cognitive diversity. However, people arriving to Canada from various countries can bring very different ways of thinking and doing things. This creates cognitive diversity in the workplace and allows Canadian companies to better succeed.

A high degree of cognitive diversity could generate accelerated learning and performance in the face of new, uncertain, and complex situations, as in the case of the execution problem we set for our executives. – Harvard Business Review

Sources: Bloomberg; CTV News; CBC; CIC News; Bank of Canada; The Globe and Mail; The Globe and Mail; Statistics Canada; Miles Corak; Forbes; Forbes; Emergenetics; The Star; HBR; Wikipedia Commons;

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At the end of the day on December 3rd Western Canadian Select (WCS) futures, the reference price for heavy crude from the oil sands was trading at $27.95/barrel. WTI Crude (North American Crude benchmark), on the other hand, was trading at $52.95. WCS was trading at a relative discount of $25. This too after WCS was up by over 65% ($11.02) on the day because of Alberta Premier Notleys announcement. The spread/differential has continually grown to historic highs as global oil prices have increased over the past year but the price of WCS has rapidly declined from its high of $58.37 since May. In fact, in October WCS was trading at a $52/barrel discount compared to WTI.

At historic lows of $13.27 in mid-November, something needed to be done. For the first time since 1980, the province of Alberta will limit the production of oil. This cut of about 325,000 barrels a day along with a plan to acquire more rail capacity and Enbridge line 3 expected to open by the end of next year, WCS prices finally have some relief. Although WCS has historically always traded at a discount, why is the discount at such a high level now?

Reliance on the U.S.

For anyone that followed the NAFTA saga since President Trump was elected knows how reliant the Canadian economy is on the United States. For many years Canada has been working on diversifying our global trade and trade agreements like CETA and CPTPP will help with that a lot overall. However, without building more pipelines to the coasts, the Canadian Oil industry will remain strongly reliant on the U.S. Canada is the fourth largest producer and exporter of oil but 99% of our oil exports go to the U.S. This means that we are very reliant on the U.S. to buy our oil. Two of Canadian oil’s key U.S. customers have been offline and underground maintenance for some weeks. With both BP Plc’s Whiting refinery in Indiana and Marathon Petroleum Corp.’s Detroit refinery offline, a large amount of inventory has built up with nowhere else to be shipped.

Shipping Constraints

Roughly 35 million barrels of oil (double the normal amount) were sitting in storage and before these cuts, an additional 190,000 barrels were being added every day to storage because they were unable to be shipped out. Basic economics teaches that an excess of supply means prices will have to drop to compensate. Even if these lower prices increase demand, the oil still has no way of being shipped. Most pipelines are running near maximum and while rail capacity is increasing fast, it cannot keep up.

Need for Pipelines

Many activists say that if the Trans Mountain pipeline and other pipelines are allowed to be built, it will increase emissions because more oil will be produced from the oil sands. There is no denying that the emissions from the Canadian Oil Sands contribute significantly to Canadian emissions. There is also no denying that moving oil that pipeline spills can damage the environment around them. However, looking at the facts the lack of pipelines will not reduce the amount of oil being produced but it will just be transported in different ways, primarily by rail. In 2017, the oil industry shipped approximately 140,000 barrels by rail per day. By the end of this year, the amount of oil being shipped by rail could hit 300,000 barrels per day.

Greg Stringham an energy consultant said,

With further delays in pipelines, that’s increased the amount of oil that’s moving by rail but also increased the interest in that as well as companies look to that option.

Safest Method of Transportation

Experts say not only are pipelines the safest method for moving crude but also the most efficient and least expensive way to ship oil. In 2015 the Fraser Institute conducted a study analyzing the methods of transporting oil between 2003 and 2013. Although both rail and pipelines are considered safe methods of transportation, pipelines are by far the safer method. The study highlights that an incident is 4.5 times more likely when shipping by rail. Not only that but 99% of pipeline incidents did not damage the environment. If the oil is going to be produced and shipped regardless, should we not be using the safest method of transportation while reducing our reliance on the U.S. by building more pipelines?

Sources: Oil Price; CBC; Financial Post; Financial Post; Financial Post; BNN Bloomberg; Keep Canada Working; CTV News; CBC; Natural Resources Canada; Fraser Institute;

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