If you only know one thing about the Alberta economy, it’s probably the phrase “boom and bust.” And, if you run a business in Alberta, you’ve had to adjust to this reality. It’s the cost of doing business. If you’re lucky, the highs balance out the lows.
But this current recession, caused by the impact of the global coronavirus pandemic, is different. To prepare for this uncertain future, businesses need to understand where the economy is at right now and what that means for things in the future. It’s certainly not the Alberta economy of boomtimes – but this won’t last forever.
Like everywhere, Alberta’s economy is getting hit
First off, let’s look at how bad the impact is. In April, Alberta lost almost 244,000 jobs, bringing the jobless rate in the province to 13.4 per cent. That’s the third highest in the country — the Canadian average is 10 per cent. Premier Jason Kenney estimated the unemployment rate could go as high as 25 per cent.
Nationally, more than three million people have lost their jobs. (In the U.S., small businesses cut more than 11 million jobs in April alone.) It’s not just because of coronavirus, although that’s most of it. Alberta was already suffering from record-low oil prices, which caused production to rapidly decline to just seven per cent of production in December 2019. Only 7 per cent of businesses plan to hire full-time staff in the next three months; half are planning to lay off employees.
The low prices will dramatically affect the provincial budget, too, whose projected revenues were based on a significantly higher oil price. And the oil and gas sector is slashing its capital budgets, often by drastic amounts, resulting in job losses and pay reductions. Agriculture, another major industry in Alberta, is being hit by a slowdown in the meat-packing sector; McDonald’s Canada recently announced that it’d be buying beef from suppliers outside of Canada.
All this combines to make Alberta particularly hard-hit. According to RBC, Canada’s real GDP will contract by 4.9 per cent in 2020, but Alberta’s will shrink by 8.2 per cent. Calgary recorded the largest number in Canada of people leaving the workforce, at almost 26,000 people.
Albertans aren’t spending like they used to
If you’re in the business of selling consumer goods, you’re already aware that Albertans are buying fewer of them compared to before the recession. Alberta had already been dealing with reduced consumer spending since the recession that began in 2014. For example, according to ATB Financial, the number of new cars and trucks sold in Alberta was still 15 per cent lower in May 2019 than in May 2014 before the recession took hold.
Albertans were already buying fewer houses, too. Home sales dropped to their lowest level in more than six years in February 2019, according to the Canadian Real Estate Association (CREA).
Now, coronavirus has affected consumer spending even further. Retail vehicle spending in Canada dropped by almost half in March, and experts expect April and May, and beyond, will see even more-dramatic declines. And in Alberta, where the busts tend to be more acute than in other provinces, vehicle sales will likely be particularly depressed. Of course, vehicle sales are typically used as a barometer for other types of consumer spending. In other words, if car sales are expected to be down, sales in other sectors will likely be down, too.
Another “barometer” industry is real estate, and the numbers are ominous. In Calgary, for example, there were fewer than 600 sales in February – a 63 per cent decrease compared to April 2019. This has also caused a decline of about eight per cent in the average home price and a drop in the number of new listings as well.
In the Edmonton region, there was a 55 per cent drop year over year in residential units sold in the first quarter of 2020. From March to April 2020, sales declined by 35 per cent. Adding to this is the fact that the Alberta Real Estate Association has outlawed open houses, and realtors have implemented strict regulations around viewings. Century 21 Elevate Real Estate, for example, is using video technology for as many meetings as possible and requiring people to drive in separate vehicles on the way to showings.
Alberta businesses are worried
All these factors make business owners – small business owners in particular – worried about the road ahead. According to the Canadian Federation of Independent Business (CFIB), half of all small businesses in Alberta are concerned about the likelihood of surviving past May.
There are several programs intended to help these small businesses. The Canada Emergency Business Account is providing interest-free loans, but those will need to be paid back at some point. Wage subsidies are helping businesses keep some employees on payroll. There is also a Canada Emergency Commercial Rent Assistance program designed to help small businesses pay rent during this slowdown. Some groups in Alberta recommend direct cash payments to small businesses, and similar approached have been taken in other provinces.
However, small businesses typically operate on razor-thin margins anyway, so they can only survive for so long when demand is down by so much. RBC economists predict that every province will experience double-digit unemployment numbers before they gradually come back down in the second half of 2020.
Good news is on the horizon
Slowly, businesses are starting to reopen, hopefully ushering in an economic rebound. In Alberta, some businesses began to reopen on May 14, with subsequent phases of reopening occurring after that.
Golf courses already reopened before May 14, and non-emergency surgeries had already resumed. Other specialists, including social workers, dentists and physiotherapists were already back to work, following strict health rules from their professional associations.
Some Alberta businesses even grew during the pandemic, given the increased demand in sectors such as retail grocery and other food-related businesses. And, according to the CFIB, business confidence actually improved in the second half of April – business confidence in Alberta was higher than the national average.
Here’s what you can do
In the meantime, there are several things that small businesses can do to help them weather the boom and bust. It’s never a bad time to work on business development, like looking for new clients or diversifying your products and services, even when demand is diminished. You can review your pricing – you might find that lowering your prices will get you through slow periods. And, finally, don’t be scared to diversify. Periods of low growth can be an opportunity to reflect on your mission and how you’re achieving it. When things get busy again, you’ll have your hands full.
If you want expert advice on the options available for your business, set up and appointment with one of our corporate recovery team members today!