Holding Strong

#4 in an 8-part series on economic perspectives by Alberta business owners

Oct 1, 2006

Optimism around the provincial economy continues at an unprecedented high, the latest ATB Financial Business Sentiment Index shows. Representing the sentiments of business owners and managers across seven sectors, activity for the third quarter of 2006 and hiring intentions for the rest of the year, the index continues to show an extremely strong performance in both the north and south of the province.

In fact, confidence in growth is the highest recorded since the quarterly study, conducted by the University of Alberta’s Western Centre for Economic Research, began in November 2005. “Eighty per cent of businesses polled expect to expand in the next quarter,” says Bob Ascah, vice-president of external relations for sponsor ATB Financial. “These numbers are a strong vote of confidence in the Alberta economy.”

The index ranges from zero, meaning all respondents expect a decrease in business, to 200, indicating all participants in the survey expect business to increase in the next quarter. In the third quarter the measure was 153.8, and for the fourth quarter it rose to 163.1, a 6% increase. The actual economic activity measured in the four quarters studied, broken down provincially as well as separately in the north and south of the province, doesn’t quite meet the corresponding sentiments by quarter (the mean showing a drop of 7.5 points), but across the board there is increased activity in all sectors.

Hiring intentions, too, indicate continued red-hot economic growth. The index points to a continued strong demand for labour, especially in the north. Hiring indications have dropped slightly in three sectors – oil and gas, construction and manufacturing – although demand for workers rose in the professional and technical sectors.

This survey will be featured exclusively in Alberta Venture over the next two years, published for readers at quarterly intervals. Look for upcoming survey results in our April, July and October 2006 issues, with more to come in 2007.

Methodology for the Alberta Business Sentiments Index:

The indexes provided in the Alberta Index of Business Sentiments are based on responses to a telephone survey of over 300 business firms in key driving sectors of the Alberta economy:
• Oil and gas exploration and development
• Agriculture
• Construction
• Manufacturing
• Transportation and warehousing
• Wholesaling
• Professional and technical services

The survey questions adapt to the circumstances of each sector. They are basic and simple to understand.

The Business Sentiments Index and the Hiring Intentions Index are constructed as follows:
• Take the difference between the percentage of positive and negative responses to questions about current and future sales and employment requirements (i.e. percentage stating an “increase,” versus a percentage stating a “decrease”).
• Convert the results to an index measure; i.e. add 100 to the percentage difference.
• Assign weights to the index of responses from each sector to obtain a composite index.

To interpret the results:
• Growth in the economy if the index is greater than 100
• An economy in neutral if the index is at 100
• Decline in the economy if the index is below 100

The higher the value of the Index, the stronger the sentiment for expansion. The ceiling value of the index is 200 (all respondents expect an increase) and the floor value is zero (all respondents expect a decrease).

Business Sentiments Index conclusion:

For the first quarter of 2006 the Alberta Business Sentiments Index stands at 149.7. This indicates an outlook of vigourous expansion. This compares with the measure of the business growth in the final quarter of 2005 which stood at 149.1. The closeness of the two index measures implies that the economy will continue on its recent growth path.

Methodology supplied by the Western Centre For Economic Research, University of Alberta School of Business

October 2006 Contents

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