I didn't have much of a chance to elaborate on last year in my last newsletter which I had to put together quickly so I'm hoping to provide a better recap of 2021 here in February. Obviously, it was another tough year as we still aren't out of this pandemic. Like 2020 though, we did have another good year on the market. While it was another start-stop-start type of situation throughout the year, the Canadian economy continued to open up. It has been hard for people to see some of the positives going on with everything going on in the world, but we have had some great growth in a number of areas. First off, the Toronto Stock Market went up 21.7% in 2021 and that's the best return we have had here since 20091. Much of this was led by Energy which had a fantastic year. After a dismal 2020, Western Canadian Provinces as well as Newfoundland & Labrador were happy to see a major rise in the price of oil. In fact, oil production in Alberta was the highest on record by the first half of 20212. It continued to be strong throughout the year. There is a lot of optimism that it could be even better here in 2022 which will be welcome news to so many who work in the Energy Industry. According to the International Energy Agency, Canadian oil production is set to hit a record 5.87 million barrels per day this year3 and with that kind of production, capital spending is rising quite considerably4. We are a long way from the kind of spending we had previously seen in the industry but again, this will have to be welcome news to those in Oil & Gas.
Secondly, job growth was very good. That's certainly not to say things were easy last year, or that everyone is happy with the job situation in Canada. The raw numbers showed good gains throughout the year though and very strong numbers by the end of 2021. The job gains absolutely obliterated expectations5 which is one of the reasons I think so many people still think unemployment is high right now. We are so used to hearing bad news that we are almost expecting that things should be worse on the job front than they actually are. The unemployment rate was around 5.5 per cent ahead of the COVID-19 pandemic and is now at a rate of approximately 6%. This six percent unemployment rate is closer to the normal numbers that we are used to in Canada. Job growth in the United States has been weaker than expected so perhaps people are hearing the news down there and mistaking it for what is happening up here. From what we can see though, those who are talking about high unemployment here in Canada are showing a profound misunderstanding of what is actually happening. The bigger issue that we are truly dealing with is Inflation…
The Rising Cost of Living is by far one of the biggest concerns that we are trying to navigate through. It ran around 4.7 to 4.8% in Canada last year and was around 4.3% here in Alberta6. Wage growth has not been as high so that's one problem right there. The other challenge is that the Bond Market has not done well over the last year because Interest Rates are rising. We haven't officially seen the Bank of Canada raise rates, but it's coming. Most expect that we'll see an Interest Rate hike in March and more to come after that. It's anyone's guess as to how high rates will go but until Inflation is under more control, expect to see hikes. Higher rates are hard on the Bond Market so please get in touch with us if you would like to discuss adding more Floating Rate Products to your Fixed Income Portfolio. If the economy keeps growing, unemployment stays low, and prices continue to rise, higher Interest Rates are almost a sure thing going forward.
We are already nearing the end of RRSP Season and you will have until March 1st to get your contributions in. After that, we'll go straight into Tax Season so there is always a lot going on at this time of the year! You'll be getting plenty of tax slips and statements in the mail over the coming days and weeks so be on the lookout for those. Remember though, that companies don't have to prepare tax slips until later on. We know that everyone is anxious to round them up and submit their Tax Returns but you simply might not have them all by the end of February. We will do our best to track down anything you are missing but please, don't expect them before we are well into March!
Bryce A. Borden
1Reuters: - https://www.reuters.com/markets/europe/tsx-slips-set-finish-2021-with-best-jump-12-years-2021-12-31/
2ATB: - https://www.atb.com/company/insights/the-owl/production-is-up/
3Financial Post: - https://financialpost.com/executive/executive-summary/posthaste-canada-set-to-smash-oil-production-record-in-2022-and-thats-a-little-bearish-for-oil
5Financial Post: - https://financialpost.com/news/economy/canada-job-gains-blow-past-expectations-more-than-four-times-expectations
6ATB: - https://hello.atb.com/the-owl-earnings-growth-lagging-inflation