Gearing Up

No. 7 in an eight-part series on economic perspectives by business owners

After a short breather, Alberta’s economy appears ready to resume last year’s pace, reports the latest ATB Financial Sentiments Business Index.

Based on a survey of 407 firms in six sectors, the Index shows that the oil and gas sector has rebounded and hiring intentions are up across the province, with northern Alberta expecting the strongest growth.

“This report was a bit of a surprise,” says Bob Ascah, vice-president of government relations, research and analysis for ATB Financial. “There has been a lot of publicity about the costs facing industry in Alberta. One might interpret that to mean that the slowdown in the first couple of quarters would continue, but the survey respondents seem to be gearing up for a strong summer quarter.”

Edward Chambers, a professor at the Western Centre for Economic Research, says the acceleration of growth to levels approximating those of 2006 raises some critical issues. Alberta is experiencing a rate of inflation of 5.5%. The national average is about 2%.

“I was dismayed when I saw the evidence in the survey of an acceleration of growth above current levels,” says Chambers. “It’s inconceivable that growth can continue in an unconstrained fashion.”

Eventually rising prices will force Alberta’s growing economy to slow down, Chambers says. But relying on the market to constrain development has consequences for the rest of the province, including soaring construction costs and strains on infrastructure.
“We have a very strong economy and these are very buoyant times, but there are price pressures in many sectors,” Ascah says.

“We have the highest level of consumer price index in the country, and that poses a challenge to all businesses and individuals.”

The ATB index ranges from zero to 200, with a 100 indicating no growth expectations.

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).

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

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