RELO Q4 2018 - Year in Review

RELO

Regina Executive Leadership Outlook Quarterly Report: December 2018

CONTENTS PAGE 2

Executive Summary

PAGE 3

Economic Outlook Dashboard Executive Confidence Current Conditions Fixed Investments Employment Sales Revenue Profitability

PAGE 6

A Year in Review (2018)

PAGE 7

Conclusion About the Report

Executive Summary The Regina economy remains resilient among various changes across the provincial and municipal landscape this year. The Executive Confidence Index remains above the neutral mark at 2.13, continuing to demonstrate a persistent confidence in Regina’s economy.

With a 19-point decrease from the previous quarter, and a 47-point decrease from Q1, 2018 the rating dropped below the overall Index Average for the first time since Q3, 2016. While there has been a steady decrease in the Executive Confidence Index across all economic indicators throughout the year, Regina executives anticipate a steady economy to ensue over the next 12 months.

The Current Conditions Index also had a slight decrease from 2.10 to 2.06, which is consistent with this time last year (2.05).

The steady decrease in the Executive Confidence Index is mostly accounted for by the increase of respondents who believe major indicators will stay the same over the next year.

As previously published in Economic Development Regina’s November 2018 Economic Report Card1, several factors within the Saskatchewan economy may be impacting the continuing decline in the Executive Confidence Index and general tentativeness of executive respondents’ answers.

Namely, year-to-date employment numbers were down this quarter in key Regina sectors such as agriculture, resource extraction, and manufacturing. Regina’s housing market has struggled with over-supply throughout 2018 resulting in less construction activity in the region, and the Bank of Canada raised the overnight rate to 1.75% (the highest rate since December 2008) as it is perceived the economy is operating at close to full capacity at a national level.

With these challenges, there are still many opportunities for continued growth within the Greater Regina Area (GRA). One of those opportunities is Protein Industries Canada (PIC).

Headquartered in Regina, PIC was a winner of federal funding through the superclusters initiative.

The Conference Board of Canada also predicts the GRA GDP to increase to 2.2% in 2019, then causing a lift of 1.1% employment. https://economicdevelopmentregina.com/economic-data/ economic-report-card

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The Executive Confidence Index remains resilient with the promise of many opportunities for continued growth within the GRA.

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Regina Executive Leadership Outlook

Economic Outlook Dashboard EXECUTIVE CONFIDENCE

CURRENT CONDITIONS

In the fourth and final quarter of 2018, the Executive Confidence Index is 2.13, a decrease of 19 points (2.32) from the third quarter of 2018 and a decrease of 47 points from January this year (2.60). With a continued decline over the 2018 calendar year, the Executive Confidence Index has fallen below the overall Index Average (currently 2.29); however, the Index remains thirteen points above the neutral point of 2.0, suggesting executives still remain optimistic about the economic outlook for the next year.

3.0

2.60

2.55 2.5

2.29

2.0

2.23

2.08

2.11

2.39 2.32 2.29

2.36

2.31 2.23 2.21

2.13

A calculation similar to the Executive Confidence Index reports executives’ perception of today’s economic conditions as compared to one year ago. When asked to compare the economic condition of their business to one year ago, executives rated the current economic condition of their business at 2.06. Over the past year, this rating has continued to be above the index average (currently 2.01) and the neutral mark (2.0). This indicates executives have perceived continuous improvement of current economic conditions for their business this quarter and throughout 2018. To date, the Confidence Index and Current Conditions Index are strongly correlated (r=.811, p <.001x), indicating that a change in current conditions is likely to be accompanied by a similar shift to the confidence index.

3.0

2.60

2.55 1.5

1.0

2.5

2016 Q1

2016 Q2

2016 Q3

2016 Q4

2017 Q1

2017 Q2

2017 Q3

2017 Q4

2018 Q1

2018 Q2

2018 Q3

2018 Q4

Confidence Index Index Average

The decrease in this quarter’s Executive Confidence Index are due to an increase in the percentage of executives responding that the economy will perform worse or remain unchanged in the next 12 months across all economic future indicators. Consequently, a significant decrease across all indicators in the percentage of executives believing the economy will perform better in the next 12 months is observed.

economicdevelopmentregina.com

2.08

2.11

2.23 2.21

1.98

1.87 1.85

2.01

2.39 2.32 2.13

2.0

2.14 1.91 1.88

2.24 2.05

2.08 2.10 2.06

1.5

1.0

The Executive Confidence Index is scored on a 3-point scale.

A result above 2.0 means executives are optimistic about the economic outlook for their business, while a result under 2.0 suggests executives are pessimistic about the economic outlook for their business.

2.23

2.36

2.31

2016 Q1

2016 Q2

2016 Q3

2016 Q4

2017 Q1

2017 Q2

2017 Q3

2017 Q4

2018 Q1

2018 Q2

2018 Q3

2018 Q4

Confidence Index Current Conditions Index

Over half (58.9 %) of executive respondents believe the current economy is performing about the same as compared to one year ago. Twenty-eight percent (28.6 %) believe the economy is performing worse.

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FIXED INVESTMENTS

EMPLOYMENT

Just under half (48.2%) of respondents expect their total fixed investments to remain the same over the next twelve months.

Within this indicator, the number of respondents expecting investments to increase has fallen by 26.5% from the last quarter, and those anticipating fixed investments to decrease has risen by 71.4%.

The majority (73.3%) of respondents expect to employ more or the same amount of people over the next year.

The percentage of those who believe they will employ more people over the next year has changed from 39.4% to 30.4%. The percentage of those who believe they will employ less people has increased from 18.2% to 23.2%.

In the next 12 months, will your firm’s total fixed investments…

Over the 2018 calendar year, a steady trend of more executive respondents believe they will employ less people.

Throughout 2018, the number of respondents indicating they expect to employ less people has steadily grown from 2.8% (Q1 2018) to 23.2% (Q4 2018).

HISTORICAL COMPARISON 80%

In the next 12 months, will the number of people your firm employs…

70%

60%

48.2%

50%

HISTORICAL COMPARISON 80%

40%

70%

30%

32.1% 16.1%

20%

10%

60%

50%

42.9%

40%

0% 2016 Q1

2016 Q2

2016 Q3

2016 Q4

2017 Q1

2017 Q2

2017 Q3

2017 Q4

2018 Q1

2018 Q2

2018 Q3

2018 Q4

30%

30.4% 20%

QUARTERLY COMPARISON

23.2%

10%

100 80

43.8%

32.1%

0% 2016 Q1

60

48.2%

40

46.9%

2016 Q2

2016 Q3

2016 Q4

2017 Q1

2017 Q2

2017 Q3

2017 Q4

2018 Q1

2018 Q2

2018 Q3

2018 Q4

QUARTERLY COMPARISON 100

20

9.4%

0

2018 Q3 Increase Stay the Same Decrease Unsure

16.1% 2018 Q4

39.4%

80

30.4%

60

42.9% 40

42.4%

20

18.2% 0

2018 Q3

23.2% 2018 Q4

Increase Stay the Same Decrease Unsure

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Regina Executive Leadership Outlook

SALES REVENUE

PROFITABILITY

The majority (78.6%) of respondents expect sales revenue to increase or remain the same in the next 12 months. The percentage of executives expecting sales to decrease has remained steady over the last half of 2018 at approximately 18%.

Over three quarters (76.8%) of respondents expect their business profitability to increase or remain the same over the next year. While the majority of respondents indicates optimism, the distribution between the percentage of respondents indicating profitability will increase or remain the same has changed over the past quarter. Similar to the other indicators this quarter, there is a decline in the number of respondents who believe the indicator will increase over the next year (-44.3%) and observe rises in both the number of respondents who expect profitability to stay the same (53.2%) or decrease (29.6%).

Similar to the previous two confidence indicators, the number of those who expect sales revenue to increase has fallen (by 32.2% this quarter), while the percentage of executives expecting sales to remain the same increased heavily (by 76.8%).

In the next 12 months, will your firm’s sales revenue…

In the next 12 months, will your firm’s profitability…

HISTORICAL COMPARISON

HISTORICAL COMPARISON

80% 80% 70% 70% 60% 60% 50%

41.1%

46.4%

50%

40%

37.5%

40%

30% 30%

30.4%

17.9%

20%

20%

19.6%

10% 10% 0% 2016 Q1

2016 Q2

2016 Q3

2016 Q4

2017 Q1

2017 Q2

2017 Q3

2017 Q4

2018 Q1

2018 Q2

QUARTERLY COMPARISON

2018 Q3

2018 Q4

0% 2016 Q1

2016 Q2

2016 Q3

2016 Q4

2017 Q1

2017 Q2

2017 Q3

2017 Q4

2018 Q1

2018 Q2

2018 Q3

2018 Q4

QUARTERLY COMPARISON

100

100

80

41.1%

30.4%

80

54.5%

60.6%

60

60

37.5%

40

46.4%

40

30.3%

21.2% 20

18.2% 0

2018 Q3 Increase Stay the Same Decrease Unsure

praxis-consulting.ca

17.9% 2018 Q4

20

15.2% 0

2018 Q3

19.6% 2018 Q4

Increase Stay the Same Decrease Unsure

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A Year in Review (2018) As the fourth and final publication of 2018, this edition of Regina Executive Leadership Outlook (RELO) analyzes the economic indicators over the 2018 calendar year.

When the first quarterly edition of RELO was published for 2018, the Executive Confidence Index was at an all-time high of 2.60. While the index still demonstrates optimism among RELO’s executive respondents sitting above the neutral 2.0 mark, respondents are becoming increasingly cautious across all economic indicators. The majority of responses indicate the economy will remain the same over 2019.

The exception to this trend of cautiousness and stability is with regards to expected business sales revenue.

Although we observed a decrease in the number of respondents who believe their firm’s sales revenue will increase over the next 12 months, the majority of executive respondents this quarter still indicate they expect their revenue to increase or remain the same over the next year.

Possible influences of a shift to ‘status-quo’ could be the over-supply within Regina’s housing market throughout the year, resulting in less construction activity in the region.

Long-time agreements such as the North American Free Trade Agreement (NAFTA) were renegotiated into the United States Mexico Canada Agreement (USMCA).

However, the tariffs on steel and aluminum which helped trigger this renegotiation remain. New market pressures from rail line and pipeline capacity has also put pressure on our local businesses as the price differential for oil remans a large challenge in the GRA economy and beyond.

Within this quarter, specifically, the Bank of Canada raised the overnight rate to 1.75% (the highest rate since December 2008), as it is perceived the economy is operating at close to full capacity at a national level. Interestingly, year-to-date employment numbers were down this quarter in key Regina sectors such as agriculture, resource extraction, and manufacturing. This could potentially coincide with the shift of RELO’s executive respondents indicating less intent to increase their workforce within the next 12 months.

While there are many challenges within the current economy that businesses must weather from the changing winds within the political realm, opportunities still do exist in the region.

Protein Industries Canada (PIC), an industry-led value chain consortium of small- to large-sized enterprises, announced the signing of an agreement to invest up to nearly $153 million, matched dollar for dollar by the private sector in November.

PIC is headquartered in Regina and offers the opportunity for immense growth for the region. Furthermore, the Conference Board of Canada predicts the GDP will rise to 2.2% in 2019, which is expected to lift employment by 1.1% in 2019.

This is an increase from the prediction of a 1.8% GDP increase in 2018.

Although the Executive Confidence Index has fallen below the overall average, it remains thirteen points above the neutral point of 2.0, suggesting executives still remain optimistic about the economic outlook for the next year.

Compared to Quarter 3, more respondents believe their firm’s sales revenue will increase or remain the same over the next year.

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Regina Executive Leadership Outlook

Conclusion This quarter business executives remain positive and are expecting a stable economic environment in the next year. The Executive Confidence Index is currently 2.13, a decrease from the previous quarter, and a 23-point decrease from this time last year.

The current Executive Confidence Index is consistent

with results observed in late 2016 to early 2017.

With the beginning of 2018 starting on such a high note, it could be perceived the provincial and municipal landscape throughout the year has resulted in leaders beginning to demonstrate preferential treatment to the status quo.

ABOUT THE REPORT Economic Development Regina (EDR), in partnership with Praxis Consulting (Praxis), began a quarterly publication entitled, “Regina Executive Leadership Outlook” in September 2014 that captures the thought leadership of senior business leaders in the Greater Regina Area (GRA) on key issues facing Regina and surrounding areas.

The survey is distributed to a list of approximately 90 senior business leaders. The survey has a standard component entitled “The Economic Outlook.”

This is a set of static questions asked each quarter that inform a unique Executive Confidence Index.

This index is used to measure how confident executives are in Regina’s overall economy across each quarter.

Every second quarter, Praxis and EDR pick a specific topic as the focus of the publication. Praxis then develops a survey questionnaire to gather quantitative data and an interview questionnaire to gather qualitative data using the chosen topic.

Survey Fieldwork for this project included 56 surveys completed

by CEOs and senior executives in Regina’s business community. Survey responses were received via an online survey, delivered to each participant by email. Responses were collected November 8 – November 21, 2018.

A total of 78 survey invitations were sent; the response rate is 71.8%. Margins of error cannot be applied to this type of non-probability sample.

economicdevelopmentregina.com

In many cases data is captured on symmetrical, verbally-anchored five-point response scales. ˙ On

this scale, responses of 1 or 2 are negative; a response of 3 is neutral, and responses of 4 or 5 are positive.

˙ This

report shows frequency of response at every option in the response set, along with a mean, to indicate the overall level of response.

Methodology The Executive Confidence Index is a single statistic calculated to gauge leadership confidence in the future economy. It is an average taken from a series of questions asking executives to look ahead 12 months.

These questions ask executives about the future of the GRA’s economy, their business’ future investments, future number of employees, future sales revenue, and future profitability. In each question, a numeric value is assigned to a verbal response. A value of ‘1’ indicates an expected decrease. A value of ‘2’ indicates an expectation of the status quo, while a value of ‘3’ indicates an expected increase.

This statistic assumes equal weight across all five economic questions. The result is an average of all responses. In this calculation, the lowest possible result is 1.0 and the highest possible result is 3.0. A result above 2.0 means that executives are optimistic about the economic outlook for their business, while a result under 2.0 suggests that executives are pessimistic about the economic outlook for their business.

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ABOUT EDR

ABOUT PRAXIS

Economic Development Regina Inc. (EDR) is the economic development agency for the Greater Regina Area.

Praxis Consulting is Saskatchewan’s largest locally-based management consulting firm.

EDR is a not for profit economic development corporation, governed by a volunteer board of directors. EDR provides leadership to the community to support industry growth and diversification through retention and expansion of existing business and encouraging investment, development of industry and tourism.

Praxis works collaboratively with clients in the facilitation of growth and excellence. Leveraging an unmatched wealth of experience across multiple sectors, Praxis adds value to their clients through:

In collaboration with key stakeholders, we work to identify, develop and promote opportunities that advance economic prosperity and ensure the Greater Regina Area offers a vibrant and diversified economy for investors, is a positive destination experience for visitors and offers a high quality of life for residents.

˙ Strategy:

David Froh, Vice President E: dfroh@economicdevelopmentregina.com P: 306-789-5099 ext 230

˙ Research:

Information gathering and data analytics.

Thought-leadership, rigorous planning, and pragmatic strategies.

˙ Results:

Cascading strategy and culture within the organization.

Valerie Sluth, Managing Principal E: vsluth@praxis-consulting.ca P: 306-545-3755