Hope everyone is dug out and/or warm and toasty here in the early days of the holiday season. Everyone at work seems to have largely finished their holiday shopping weeks ago, but as still stressed out with just a couple remaining people to buy for. With almost two weeks left I don’t know why, I don’t even start for at least another week. But then again, I’m guy, and at an age and with a group of friends who are more than happy with receiving bottles of alcohol as presents. Who cares about the thought and effort put in when you can get blasted?!
Thought we’d do something a little different today, and take a look at incomes relative to the exchange rate. The Canadian economy in general, and Alberta in particular, rely heavily on our trade relationship with the United States. So as the exchange rate swings, it can have a massive effect on the viability of projects for foreign entities. For most of my life, in other words the early-80′s on, the exchange rate had typically fluctuated between about 65-85 cents on the dollar.
But that changed in 2007, when suddenly the Canadian dollar gained a great deal of strength, and made a big push towards (and even past) par. It feel off a bit in late ’08, but is now back close to par again. So today I figured we could look at how this has effected the cost of doing business in the province for foreign entities, insofar as incomes are concerned.
We know incomes have risen of late in the province, and not just nominally. And we can see this in the graph above with the blue (Edmonton) and yellow (Calgary) lines. Those two are the median family incomes in Canadian dollars, and are inflation adjusted to 2008 dollars. Because income data takes awhile to get processed we don’t have data any more recent than 2008, but that isn’t a big deal for our purposes today.
The gist of what I’m going to point out today comes from the green and red lines (very festive in an unintentional way), and how they have moved relative to the blue and yellow lines. Those (red and green lines) are derived from the same data, but are converted to US dollars. Here we can see that the cost of doing business in the province has appreciated considerably in the last 15 years, in fact it’s practically doubled over the period. And I remind you again, that isn’t just nominally, that is inflation adjusted.
So, if you were wondering why at one time oil hitting $60 was boom times just a few years ago, but now it’s at $90 and we’re just treading water… that’s why. Well, that and natural gas has been the real commodity driver of the economy, and it’s prices are still low. A double whammy figuring in the exchange rate hovering around par. The cost of labour here has exploded for US companies, and it’s not even really the actual salaries as the exchange rate that’s kills them.
Or maybe you disagree? Food for thought anyway, and something to widdle away your working hours with on a Monday.
