By much any measure, the Island had a rather exceptional year in 2017. For the most part, all indicators have reported with consistent strength. Farm incomes and cash receipts are at historic high levels, fishery landings were net positive, tourism is peaking at capacity, manufacturing exports are trending to new highs, building permits are up on multi-year growth, and our population levels are exceeding records. You have to be a pessimist to find bad news, but…
If you own rental properties in the province the vacancy rate has never been better - under one per cent in Charlottetown. This is exceptional news for property owners, troubling news for renters as low vacancies indicate a supply shortage and a corresponding increase in rental rates. Based on population growth, this equilibrium will be an issue for some time to come.
Considering rates, interest rates have remained unsustainably low. This year they did inch upward, which shows strong economic fundamentals but ‘money’ remains ‘cheap’. This too has been great news for borrowers, the corresponding issue of low interest rates is that people do spend and borrow. Both personal and public debt continue to rise to record highs, an increasing concern for monetary policy monitors.
The provincial economy illuminated so brightly, the runway for continued growth may be shortening. (Under such strong performance and enthusiasm is a great time to be involved in an election cycle. Political strategists are likely wiping the saliva from their chins as they consider timing options.)
Federal policy is a far different scenario. The United States have just approved sweeping personal and business tax reductions with the intention to ramp up the economy. In response, companies immediately passed on these tax savings in the form of increased wages and bonuses, which will absolutely stimulate the overheated U.S. economy.
By contrast, Canada’s policy is to ram through perhaps the most punitive business taxation in several generations; and the effect will be opposite for Canadian companies and employees. We have already witnessed professionals and investment migrate to the U.S. in response to this regressive economic decision.
The year 2018 on P.E.I. will be about managing escalating costs, which will inch up with inflation — even government taxes and fees are tied to the Consumer Price Index, thanks to former finance minister Wes Sheridan’s policy. Local businesses who benefit from this strong economy and U.S. growth need to invest in innovation and people. This is a cycle for capital investment, hiring and training the workforce. Growth cycles are sporadic and profits need to be applied to maintain the profitability trajectory.
The undercurrent story to watch over the coming year will be labour participation rates, unemployment and the quality of new, mid-tier employment opportunities tied with wage rate growth.
We are closing the books on what was a great year for our Island. The coming year looks equally promising if business is not taxed into a turtle position by the federal government. The strategic business owner will be taking advantage of this environment to position their organization through the next cycle, and whatever may follow.
Blake Doyle is The Guardian's small business columnist. He can be reached at [email protected]
