BC Economic Snapshot March 9, 2013

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VANCOUVER, BC, Mar. 9, 2013/ Troy Media/ – Employment levels in B.C. rebounded in February and more than reversed January’s steep decline.

Total estimated employment in the province rose 0.9 per cent or 19,800 persons from the previous month to reach a seasonally-adjusted 2.317 million persons. This marked the highest level since September.

Gains were observed in both the full-time sector which grew by 0.7 per cent, while part-time employment rebounded more than 1 per cent. Employment growth was matched by an expansion of the labour force, leaving the unemployment rate unchanged at 6.3 per cent.
Among industries, estimated gains were led by services-producing sectors, particularly the finance, insurance and real estate sector which rose 4 per cent, as well as accommodations/foodservices and public administration which both rose 3.4 per cent.

Agriculture also recorded a sharp gain of 22 per cent, but the sector is relatively small.
February’s surge in employment, while statistically significant, should be viewed with caution and not necessarily as an indication of significant improvement in the economy, particularly as it comes off the heels of sharp prior month drop.

A near-synchronous movement of both the number employed and the size of the labour force – reflected in steady unemployment rates — suggest recent employment fluctuations are related in large part to the estimation process and sampling variability, rather than real employment changes. A moving average of the employment data, which smooths out some variability, points to a persistence of a weak hiring environment that has existed since early 2012. We expect hiring to remain tempered this year with forecast employment growth of 1.3 per cent.

Trade
B.C. merchandise exports to international markets recorded the strongest start to a year since 2007, but the underlying trend softened for a third consecutive month.

The value of export shipments reached a seasonally-adjusted $2.59 billion, down 0.7 per cent from December. While exports were generally up across the board, particularly for forestry, energy, and manufacturing products, a pull-back in mining shipments negated broad monthly gains.

International exports weighed on provincial economic growth in 2012 as uneven global economic growth led to lower prices and shipments for energy and mining products, even as demand for forestry products perked up. Prospects are better this year.

Measures of global manufacturing output, including the JPMorgan PMI suggests manufacturing output is in an expansionary phase despite ongoing European weakness following six months of contraction. The U.S. economy still faces challenges, particularly with “sequester” related spending cuts between March 1 and September 30, which could mean a $44 billion drop in outlays that will drag on economic growth.

However, housing continues to recover with an uptrend in starts and business investment also rose substantially in the fourth quarter, which should support machinery exports and extend the recent forestry sector export uptrend. China’s economy also looks to be picking up speed following its slowdown. Government spending on infrastructure and affordable housing could provide a boost to general commodity demand and forestry. International exports are forecast to grow modestly by about 3 per cent this year.

The faster growing U.S. economy after 2014 will give a considerable boost to B.C. exports of wood products while the strengthening global economy lift mining and energy exports.

Housing

Regardless of how the numbers are sliced and diced, Lower Mainland MLS activity remained abysmal in February with sales failing to generate momentum following a slight January sales uptick. Regional sales, which span Metro Vancouver and Abbotsford-Mission, fell to a seasonally-adjusted 2,630 units during the month, down nearly 8 per cent from January.

Excluding the recessionary nadir of late-2008/early-2009, sales are at the lowest level in more than a decade. Unadjusted activity fell 29 per cent from same-month 2012, but the drop was magnified by an additional sales day in leap year 2012.

Weak sales and lower likelihood of quick sales at amenable prices have some prospective sellers stepping back from the market. The new listings flow retreated in February following a sharp January uptick, extending the modest downtrend observed since last year. However, inventory remained elevated as low sales offset new listings declines.

Excess new and existing homes for sale continued to erode prices in the Lower Mainland. Adjusted for seasonal factors, the MLS Home Price Index (HPI) eased for ninth consecutive month in February, falling 0.1 per cent from January, and is down about 3 per cent from peak. The unadjusted HPI is down 4 per cent from the mid-2012 peak, and 2.3 per cent below same-month 2012.

Home sales are expected to trend higher from exceptionally weak levels as price declines and improved confidence pull some buyers into the market. However, tighter mortgage insurance rules continue to dampen first-time buyer activity, and by extension, weigh on move-up buyer activity.

We forecast annual MLS sales in the region to fall about 3 per cent from 2012 levels despite the uptrend. Downside risk to the HPI is expected to be limited to a further 5 per cent during the first half of 2013, marking a reversion to 2010 levels and a benchmark price of about $510,000.
Supply-side adjustments are expected in light of weak demand. Stable, albeit subdued, economic and labour market conditions, and steady interest rates means most prospective sellers have the luxury of time. In the absence of severe shocks to household incomes or mortgage payments, many prospective sellers will remain patient or pull listings if price levels do not meet minimum expectations rather than slash prices.

Meanwhile, equity constrained first-time buyers may find an unwillingness or inability among post-2007 buyers of condominium and townhome buyers to lower prices. Unlike detached home prices which surged in 2011, multi-family home prices have generally remained unchanged, with the exception of the sharp deviation during 2008/09. Price cuts to meet the lower borrowing capacity of buyers since July, along with associated transaction costs will cut into homeowner equity, and impede the ability of recent buyers to move upmarket. Expect owners in this market segment to remain relatively immobile in the short term, and curtail listings activity.

Construction
The value of building permits issued by B.C. municipalities rose in January for the first time since September as higher residential activity offset a modest decline in non-residential intentions. Total dollar-volume reached an estimated $772.7 million (seasonally-adjusted) in January, up 11 per cent from December.

Despite the rebound, total permit volumes remained well below the high-water mark observed in the first three quarters of 2012 and points to an easing of residential and non-residential building investment later this year.

Residential permit activity in January rose 16 per cent to a seasonally-adjusted $585.3 million on increased apartment permits, marking a six-month high. However, residential volumes are volatile given the influence that large-scale projects can have in any given month. Expect a decelerating trend going forward in light of weak market conditions and high inventory which will generate a 10 per cent decline in provincial housing starts.

Non-residential permit volume continued to decline in January, extending the downward trend recorded since September. Volume fell to $187.3 million during the month, marking a decline of about half from mid-2012 levels, and the lowest in more than a year.

Recent drops have reflected a downtrend in industrial activity as well as the impact of large project starts in the North and hospital expansions in the Lower Mainland that boosted 2012 volumes. Non-residential permit volume is expected to pull back by about 15 per cent this year following a near 30 per cent surge in 2012. However, last year’s activity will generate ongoing investment activity this year, contributing to a 4 per cent increase in building construction investment.

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