Monday, June 19, 2017

China Key to Unlocking NHL Olympic Hockey Boycott

For 50 years, the National Hockey League (NHL) has been struggling in vain to break through in the American television (TV) market. When Sidney Crosby won his 3rd Stanley Cup with the Pittsburgh Penguins earlier this month, more Americans watched Celebrity Family Feud than the NHL telecast in the same time slot. The next night, the National Basketball Association won the United States (US) ratings battle with an audience three times larger than the number of NHL viewers.

The Olympics account for the 5 most watched hockey games in US TV history. The NHL has never managed to turn an Olympic hockey buzz into more American viewers. No American audience for a NHL game has come close to the viewership for team USA playing an Olympic final or semi-final.

Disappointed by the impact of past Olympics on NHL ratings, Commissioner Gary Bettman decided that his league had nothing to lose by threatening to boycott the 2018 Olympics in South Korea. Bettman demanded free use of the Olympic rings logo in NHL advertising as the price of player participation at the 2018 Games. When International Olympic Committee (IOC) President Thomas Bach rejected Bettman’s condition, the NHL blocked their players from going to the 2018 Olympics.

Bettman and Bach are two alpha males locked in a stand-off. Neither will back down. 

If you are interested in my proposal to solve this impasse before the 2022 Beijing Olympics, contact me at

(How does this post connect to the Ontario economy and the other provinces? Canadians watching Olympic hockey in the middle of the nights and early mornings in February 2018 might have a small impact on productivity. That's the best I've got as an explanation. The sad truth is that I want to get this idea into circulation before it's too late and I couldn't find a better outlet than my own blog.)

Tuesday, January 31, 2017

Ontario Gold for Nominal GDP Growth

In terms of nominal Gross Domestic Product (GDP) at current prices for each year (NOT adjusted for changes in the prices of each province's products), Ontario ranked 1st averaging 4.8%/year from the base year of 2013 to the latest data for 2015. BC was 2nd at with 4.5% annual GDP growth, PEI 3rd at 3.7%, Manitoba 4th at 2.8% and Quebec 5th at 2.2%. 

Why am I reporting nominal GDP growth? 2015 was an unusual year when oil prices fell sharply. As a result, Alberta's nominal GDP fell by -12.5% between 2014 and 2015. Newfoundland suffered a -11.5% GDP decline and Saskatchewan GDP fell by -5.7%. 

Alberta's real GDP measured in units of production valued at 2007 prices fell by -3.6% in 2015. But, to my mind, the -12.5% nominal GDP decline measures the pain suffered by Alberta workers, businesses and governments in 2015 better than the -3.6% real GDP fall.

Measured in real GDP, BC was the growth leader averaging 3.3% with Ontario at 2.6%.

Over short periods, provincial governments cannot be held responsible for GDP growth. Alberta does not control oil prices. Neither Ontario nor Quebec controls American demand for their exports. However, I do believe that over much longer periods measured in decades, part of the difference between Ontario vs. Quebec GDP growth rates will reflect provincial government economic policy frameworks. Let's see whether the Quebec tortoise catches up with the Ontario hare as the years go by.

Tuesday, June 21, 2016

Brexit Impact on UK Bond Rating = Football Supporters Voting to Relegate Their Club

(As a longtime Anglophile with an English grandfather and Scottish grandmother, I am taking a break from watching Ontario, Canada to comment on the 23 June referendum in Britain.)

Belittling European neighbors is a favorite sport of British politicians calling for the United Kingdom (UK) to leave the European Union (EU) in the June 23rd referendum. “Leave” campaigners take particular delight deriding France’s economic weakness and misguided policies. Former London Mayor Boris Johnson once called French President Hollande’s government “sans-culottes” -- meaning low-class revolutionaries lacking proper trousers. In a European Parliament debate, UK Independence Party leader Nigel Farage mocked France as a “pipsqueak”.
By most economic measures, the UK is well ahead of France. The UK unemployment rate of 5.1% for the 1st quarter of 2016 was half France’s 10.1%. The UK economy has grown at a 2.1% annual rate over the last 20 years vs. 1.5% for France. With its own floating currency, the UK controls its own monetary policy. France trapped itself in the euro zone with an exchange rate too high for the uncompetitive French economy.
A government’s bond rating is a summary measure of how a country ranks relative to other countries in economic strength as well as political stability and its history of paying debts on time. The UK does indeed outrank France on the bond rating scale.
Standard & Poor’s (S&P), one of the most influential risk assessment agencies in global financial markets, rates bonds issued by 126 sovereign nations. S&P grants its top AAA rating to the UK and only 12 other countries. In addition to the UK, 5 other AAA countries are EU members –- Denmark, Germany, Luxembourg, Netherlands and Sweden.
S&P ranks UK bonds higher than even United States (US) government bonds. S&P demoted the US from AAA to a AA+ rating in 2011 when the Republican Congress threatened to halt bond payments in a budget fight with President Obama.
France ranks even lower with a third-tier AA rating. Ironically, if Johnson and Farage win the referendum on Britain’s exit from the EU (now widely called “Brexit” for short), one of the first aftershocks will be a rating downgrade that could ultimately knock UK bonds back to the same level as pipsqueak, no-pants France.
After Prime Minister David Cameron’s EU referendum plan was confirmed by his re-election in 2015, S&P warned the UK that its top AAA rating was at risk. S&P assigned a “negative outlook” to the UK’s rating because the referendum “could negatively affect sustainable public finances, balanced economic growth, and the response to economic or political shocks”.
Many British voters have tuned out the conflicting economic arguments in the referendum debate. Each side claims the UK’s future will be rosy if their campaign wins and dire if their opponents prevail. Undecided British voters can cut through this confusion by paying attention to how professional risk assessors from the rating agencies view the UK’s prospects after Brexit. 
 Of course, the majority of Britons do not own bonds and may never have heard of S&P or any other rating agency. For these voters, an analogy with English soccer football might help. Think of the UK’s AAA rating as similar to S&P ranking the UK as a member of the elite Premier League of only the safest government bonds.
With their “negative outlook” warning, S&P told Britons that their country’s bonds are still top-ranked AAA for now, but risk being relegated to the AA+ second tier. In other words, UK bonds are like the Crystal Palace football club – barely hanging on in the Premier League after finishing the 2016 season just above the bottom 3 clubs sent down to the second-tier Championship League.
Moody’s Investors Service, whose clout rivals S&P’s, already rates UK bonds in their second-best Aa1 rank. For Moody’s, UK bonds are like Leeds United – no longer great enough to be a top Premier League side, but as a Championship League member still more reliable than most English football clubs.
Like S&P, Moody’s rates France’s bonds in its third tier, which Moody’s calls Aa2. In other words, France ranks in the Football League One of bond ratings. Think of France’s standing in the world of government bonds as similar to Scunthorpe United’s in English football.
Bond rating agencies and football associations both use grade inflation to make their clients feel better. An A+ bond rating from S&P sounds good. After all, A+ is the top grade for students in school. However, A+ is S&P’s fifth-best bond rating. Similarly, the title, Football League One, hides the truth that this is England’s third-best league. Indeed, Football League One was formerly known as the Third Division.  
Both S&P and Moody’s have warned that Brexit could knock the UK bond rating down to their equivalent of the Third Division. Earlier this year, Moritz Kraemer, S&P’s Chief Rating Officer for government bonds, told Reuters that “departure from the EU … could lower the (UK) rating by potentially more than one notch, depending on the circumstances, such as the expected future relations with the EU”. A 2-notch demotion would drop the UK’s bond rating to third-tier AA, the same level as France.
Senior Vice President Kathrin Muehlbronner stated Moody’s view that “the economic costs of a decision to leave the EU would outweigh the economic benefits. Moody's would consider … assigning a negative outlook to the (UK) sovereign's Aa1 rating following a vote to exit, pending greater clarity on the longer-term impact.” In other words, if Brexit subsequently had the feared negative impact, Moody’s would cut its UK bond rating to third-tier Aa2, the same level as France.
A country’s bond rating matters for more than just national pride. Investors around the world treat S&P and Moody’s ratings as report cards on countries’ economic prospects. If Britons vote to leave the EU and ratings fall for UK government bonds, a knock-on effect would depress bond ratings for businesses based in the UK. In a forthcoming Journal of Finance article, Professors Almeida, Cunha, Ferreira and Restrepo “find that firms reduce their investment … due to a rising cost of debt capital following a sovereign rating downgrade”. Lower business investment would slow the UK economy both short-term and long-term.
Boris Johnson is so popular with Conservative Party members that he will likely succeed David Cameron as Prime Minister regardless of the referendum result. Paradoxically, a future Prime Minister Johnson would have an easier time managing the UK economy if his anti-EU campaign falls short on June 23rd.
If the UK remains in the EU, S&P might remove the “negative watch” outlook attached to the UK’s AAA rating. To return to the football analogy, the UK economy and government bonds would be viewed more like Manchester United near the top of the Premier League than Crystal Palace near the bottom.
On the other hand, if Brexit wins, Boris Johnson would take charge of a country with uncertain prospects and a bond rating heading to the status of third-tier France. If he wins the referendum, we can think of newly installed Prime Minister Johnson as like a Premier League assistant manager, who successfully plots to replace his boss only to find that his ascension to the manager’s chair coincides with his side’s slide down to the Third Division. Johnson's only consolation as Prime Minister may be sporting slightly nicer trousers than the President of France.  

Thursday, October 22, 2015

Greenhouse Gas (GHG) Emissions by Province

(Updated 2017 with 2015 data)
In new Prime Minister Justin Trudeau’s election platform, he committed his government to:
·         “working with the provinces and territories to set (greenhouse gas) targets”
·         “attend the December 2015 United Nations Climate Change Conference in Paris, and will invite all Premiers to join him”

With the new government’s new accent on working with the provinces in this area, let’s look at the record so far with a special focus on GHG emissions by province.

The Chr├ętien/Martin government ratified the 1997 Kyoto Protocol and committed Canada to reduce GHG emissions. Canada’s average emissions over 2008-2012 were to be 6% below the 1990 level. In 2005, the last year that the previous Liberal government was in office Canada’s GHG emissions were 21% above the 1990 benchmark.

To be fair to former Prime Minister Harper, even if he had wanted to, he could not possibly have met the Kyoto commitment that he inherited when he took office at the start of 2006. However, he did not want to comply with Canada’s Kyoto commitment. He sneered at “so-called GHG emissions” and dismissed Kyoto as “fun for a few scientific and environmental elites in Ottawa, but (for) ordinary Canadians ... the benefits are negligible”. 

The Harper government formally withdrew from the Kyoto Protocol.

The provinces were not bound by the Kyoto Protocol. However, the provinces control many policy levers needed to reduce GHG emissions – e.g., ownership and/or regulation of electric power, share the gasoline tax with the federal government.

Environment Canada collects and publishes comparable estimates of GHG emissions by province. No province met Canada’s national target of a 6% GHG reduction between 1990 and 2008-12. However, Quebec came close to a 5% reduction. Ontario at -2% was the only other province to reduce GHGs over that period. But, these reductions in Canada’s 2 most populous provinces were dwarfed by GHG increases in the three westernmost provinces – Saskatchewan (+56%), Alberta (+40%) and British Columbia (BC +19%). Thanks to the GHG-intensive boom in western oil and gas production, GHGs rose by 16.5% for Canada as a whole vs. up 7% in the USA, which never ratified Kyoto.

In the 2009 Copenhagen Agreement, Harper adopted Chr├ętien’s strategy of copying the American target – 2020 GHG emissions 17% below the 2005 level.

So far, Canada is doing a bit better with our Copenhagen commitment. The latest data for 2015 (the last full calendar year of the Harper regime) show Canada’s GHG emissions 2% below the 2005 benchmark vs. -10% reduction in the USA. However, neither Canada nor the USA will likely hit their Copenhagen target of a 17% GHG reduction by 2020. 

At the provincial level, New Brunswick (NB) and Nova Scotia (NS) are leading the way with 2015 GHGs 30% below their 2005 levels. Ontario is 3rd at -19%, Prince Edward Island 4th (PEI = -15%), Quebec 5th at -10% and BC 6th at -5%. Alberta (+18%) and Saskatchewan (+8%) remain the laggards, but thanks to low oil prices slowing production GHGs in those provinces have not grown as fast from 2005 to 2015 as was the case from 1990 to 2005.

Looking at the full 1990-2015 period spanning both Kyoto and Copenhagen, NS (-18%) and NB (-13.5%) are the leaders followed by Quebec 3rd at -10%, Ontario 5th at -8% and PEI  5th at -5%, . However, GHGs have grown fast enough in Saskatchewan (+66%), Alberta (+56%) and BC (+17%) to leave Canada’s total for 2015 18% above the Kyoto Protocol’s 1990 benchmark (vs. 3.5% rise over the same period in the US).

In the new Paris Agreement, the new Trudeau government set yet another target for Canada -- a 30% GHG reduction from 2005 by 2030. Canada has finally set a different target than the USA. President Obama committed Americans to reduce total GHGs by 26% below their 2005 level by 2025. Neither Canada nor the USA has a plan to reach the new Paris targets and the Trump Administration has announced that the USA is withdrawing from the Paris process.

Monday, May 11, 2015

Ontario Silver Medal for Job Growth in 2016 (and over 2013-16)

With all 12 months of Statistics Canada job data now in, 2016 looks relatively good for Ontario with 1.1% year-over-year job growth -- 2nd out of 10 provinces behind only to British Columbia (BC =3.2%). Quebec ranks 3rd with 0.8% job growth. All other provinces have fewer jobs in 2016 compared to 2015.

Let's treat 2013 as the base year for comparison -- the last full year of the Parti Quebecois government in Quebec and last year that we could say that previous Premier Dalton McGuinty's policies were in effect in Ontario with current Premier Kathleen Wynne taking over in February 2013. Ontario ranks 2nd in job growth with 2013 as the base year averaging 0.9% over the 3 years to 2016 and Quebec ranks 3rd with 0.6% annual job growth when employment averaged for all 12 months of 2016 is compared with 2013. BC reigns supreme over this period averaging 1.6% annual job growth.

Over a longer period, employment growing faster in Quebec than in Ontario is one of the little-noticed economic stories of this millenium. Quebec's annualized average job growth of 1.2% has exceeded Ontario at 1.1% (2016 vs. 2001).

Quebec's reputation as one of Canada's economic tortoises dates back to the last century. Quebec jobs rose at a 1.2% annualized rate over 25 years to 2001 from 1976 -- the year that the PQ was first elected. The PQ was in power for 16 years of this quarter-century period from 1976 to 2001. Quebec ranked 7th in Canada annualized average job growth. Alberta (2.6%), BC (2.4%) and Ontario (1.9%) were Canada's economic hares from 1976 to 2001.

Quebec's job growth history fits the tortoise vs. hare metaphor quite nicely. Quebec's job growth since 2001 has continued at about the same pace as the 1976-2001 period. But, Ontario, once one of Canada's economic hares, fell back behind Quebec's job growth pace.

However, the last 3 years mark a restoration of Ontario's superior job growth performance vs. Quebec.

(Update July 2017) Employment data for the first half of 2017 show BC still out in front with 3.97% annual job growth vs. 2016 (not seasonally adjusted). Interesting that strong job growth did not save the BC Liberal government from a narrow defeat in the May 2017 election. PEI is in silver position at 3.3% (after a -2.2% loss in 2016), Quebec bronze at 2.3% and Ontario 4th at 1.3%. Alberta's job market is at least showing signs of stabilizing with total jobs up 0.7% (7th). Newfoundland is last with jobs down another -3.7% so far in 2017 as that province's economy suffers the double whammy of lower oil prices (since the recent highs of 2014) and a fiscal adjustment enforced by the bond market. 

Tuesday, March 24, 2015

Ontario Housing Prices Still Booming

The Quebec economy and job market were growing slowly even before the Couillard Liberal government won power in April 2014. With the new government following a familiar script of doling out tough fiscal measures in the post-election budget, Montreal and Quebec City house prices peaked in the summer of 2014. 

As of May 2017, Montreal housing prices have finally inched back 0.2% above the previous peak level reached in 2014, but Quebec City prices were still -6% below 2014. If Quebec's fiscal plan works over the medium to long term, let's see whether Montreal housing price growth catches up with and even pulls ahead of Toronto in later years. 

No sign of that so far. 2013 is our starting or base year before the Quebec Liberals were elected and the Ontario Liberals were re-elected. Greater Toronto's housing price growth of 9.4%/year was streets ahead of Greater Montreal at 0.2%/year when we compare the annual average Teranet housing price index for 2016 to the 2013 annual average.

Vancouver's annual price growth was even higher over this period at 11.6%. 

Vancouver sale prices for the first 5 months of 2017 were up 12% from the same months in 2016.

No surprise to see Alberta house prices turning down in 2016 with Calgary down -2.6% and Edmonton down -1% compared to 2015 on a full year average basis. However, Calgary housing prices did rise month-over-month in late 2016 with the oil price. For 2017 so far, Calgary prices were up 1% over 2016 with Edmonton prices down -1%.  

The beat goes on in southern Ontario with Toronto prices up 25% and Hamilton prices up 21% so far in 2017. It's hard to believe that the Greater Toronto housing price boom is going to end with a soft landing. Montreal and Quebec City annual price growth in 2017 remains way behind at 3% and -2% respectively.

CIBC economist Benjamin Tal's review of rent control is worth reading now that the Ontario government is extending this policy to buildings built after 1991.

Friday, January 9, 2015

Ontario Jobs Hare Beat Quebec Tortoise in 2014

(Updated 18 February 2016)
Statistics Canada data show that Ontario is back on top as the non-oil province with the strongest job growth in 2014 (12-month average compared to 2013). 

Yes, Alberta and Saskatchewan led the way again in 2014. The oil price was high for most of 2014. Ontario and the other non-oil provinces could not compete with Alberta and Saskatchewan in the 2014 job growth contest. Alberta, Saskatchewan and BC have been dominating job growth in Canada since 2000. But, 2014 may well mark the last hurrah for the western jobs boom until resource prices bounce back. 

Quebec lagged behind in 6th place among the 10 provinces. On an annual average basis, total jobs actually fell by 0.03% in Quebec between 2013 and 2014 vs. +0.8% growth in Ontario. Job growth was already lagging in Quebec when the Parti Quebecois government of Pauline Marois was defeated in April 2014. The incoming Couillard government may have then contributed to job stagnation with budget constraints imposed to meet the 2015-16 budget balance target.

The Quebec government will be in a much stronger position than Ontario to withstand the next recession. My hypothesis is that the Quebec jobs tortoise will catch up with and surpass the Ontario hare during the next economic cycle of recession and recovery. However, I can't predict whether Couillard's risk-averse approach to fiscal management will have paid off politically by the autumn of 2018 when both the Quebec and Ontario governments return to the polls.

GDP Growth 2014

Ontario's relatively strong employment performance in 2014 was consistent with relatively strong economic and income growth as measured by Gross Domestic Product (GDP). Ontario's real GDP (adjusted for changes in the prices of each province's products) growth of 2.7% in 2014 ranked 3rd among the provinces behind Alberta (4.8%) and BC (3.2%). Quebec ranked 6th with 1.5% real growth.

Alberta's years of strong GDP growth ended in 2014 and will not resume until the world oil price rebounds and/or Alberta goes through the painful transition to a post-oil future.