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Trevor Tombe is an Assistant Professor of Economics at the University of Calgary, and Research Fellow at the School of Public Policy.

The latest data from Statistics Canada was worse than expected: Alberta's economy shrank 3.8 per cent in 2016. For two straight years now, the economy contracted, earnings fell, profits evaporated, the deficit ballooned and unemployment rose to levels not seen in decades.

But despite the news, Alberta's economy remains the strongest in Canada.


We produce, earn and work more than any other province. One cannot ignore the deep pockets of pain felt by tens of thousands of Albertans, but the cause is not broad economic weakness. Understanding this is critical to make smart policy choices, to target support where it's needed and to filter through political rhetoric on all sides.

Of course, the oil shock was massive. In 2014, when oil could fetch over $100 (U.S.) a barrel, Alberta's economy produced $373-billion worth of final goods and services. By 2016, it produced $310-billion – down 17 per cent, according to the Conference Board of Canada. Toss in the forgone growth had oil prices remained high, and there's roughly $100-billion less in 2016 to go around. Let that sink in.

That's the bad news. Here's the good: At $73,000 a person, the economy is still stronger than the national average ($54,700) or the next strongest economy of Saskatchewan ($66,700). So at its worst, Alberta's economy was 10 per cent larger per person than the second-place province, and 30 per cent larger than the Canadian average.

This matters for individuals. In March of this year, 67 per cent of working-age Albertans were employed – 54.5 per cent in full-time jobs – and earned an average of $1,100 a week. These figures are higher than those of any other province. Even adjusting for cost-of-living differences and our young population, Alberta remains at or near the top.

But why is our unemployment rate high? Partly, because workers who give up looking for work aren't considered "unemployed" and Alberta has fewer so-called "discouraged" workers than anywhere else. In fact, over 73 per cent of working-age Albertans have a job or are seeking one – the highest rate in Canada. If 120,000 unemployed Albertans gave up and withdrew from the labour force, our participation rate would match Saskatchewan's 69 per cent and our unemployment rate would fall to 3.5 per cent. But that would be bad.

What about the future? Will the economy contract further? Unlikely.

Employment, manufacturing, retail and wholesale trade, exports, oil production, drilling and many other measures are all higher now than last year. A monthly survey of business sentiment by the Canadian Federation of Independent Business has also turned positive. Combining all this data into a single summary measure is tricky, but my own composite index of Alberta economic growth is now at its highest rate since 2012. The provincial government's Alberta Activity Index is also at recent highs, and about halfway back to its prior peak in 2014. The recession almost surely ended in 2016, and the recovery is well under way.

None of this denies the real and significant challenges faced by many. Job losses in the resource sector and those that supply it were steep. One in six Albertans previously employed in oil and gas, construction or manufacturing is employed no longer. And this pain is not evenly distributed.

The largest employment losses were among those with no more than a high-school degree. Adjustment for these displaced workers is proving very difficult. At last count, 35,000 Albertans have been unemployed for one year or more – nearly four times as many as in 2014 – and over 63,000 have been for six months or more. As a share of the labour force, this is higher than the rates of most other provinces and higher than Alberta has seen since the early 1990s.

All these facts, the good and the bad, should change our perspective in many important ways. First, efforts to "diversify" or "stimulate" the economy are misplaced and potentially counterproductive – the broad economy is not the problem; better to narrow our focus to supporting displaced workers. Second, the government's budget deficit is certainly large, but is not, and some suppose, due to a weak economy. Alberta's ability to raise revenue (its "fiscal capacity") remains the highest in Canada. Our past reliance on royalty revenue is the deficit's real cause.

Political claims by all sides are often misleading and can help distort our view of the province. We see it as weaker than it really is. We see it as more dependent on oil than it is. We give too much weight to the bad news and neglect the good. But the data is clear: Alberta's economy is strong, and growing once again.