BC Economic Snapshot April 20, 2013

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Shelter and Energy Lower

Housing Sales Off 17.7% Over 2012

VANCOUVER, BC, Apr. 20, 2013/ Troy Media/ – Consumer prices held steady in March as February’s uptick in B.C.’s consumer price index (CPI) by and large held up for another month.
Despite the stronger price profile, 12-month consumer price inflation decelerated to 0.5 per cent in March, following a previous month gain of 0.9 per cent, marking a reversion to the underlying trend observed since September.

Persistence of weak consumer price inflation in March reflected lower shelter and energy prices. While the price of gasoline has increased over the past couple of months, levels were down 0.6 per cent from the same-month in 2012, and natural gas was more than 5 per cent lower.

In contrast, growth in 12-month food prices of 2.5 per cent, led by fresh produce exceeded headline CPI growth. Inflationary pressures are expected to remain subdued in 2013, reflecting a backdrop of tempered retail spending, slow economic growth, and tame commodity prices.
Average full-year inflation is forecast to reach about 1 per cent this year as price levels edge higher.

Housing
B.C.’s struggling housing market recorded a modest gain in sales activity in March but remained within spitting distance of recent month lows. Total provincial MLS sales rose 6.6 per cent from February to reach a seasonally-adjusted 5,345 units, led by gains in Metro Vancouver and the Thompson-Okanagan region. Broad gains more than offset a dip in northern B.C. sales.

Despite monthly gains, which pushed monthly activity to the highest level since July, unadjusted activity was still 17.7 per cent lower than the same-month in 2012, while first quarter activity was down nearly 19 per cent.

Excluding the recessionary nadir of late- 2008/early-2009, home sales held near the lowest level in over a decade. Higher sales and a relatively low pace of new listings pared month-end active listings for a second consecutive month suggesting resale inventory has rolled over from late-2012 highs.

Market conditions firmed slightly in March but inventory remained high relative to the current sales pace and most markets in B.C. were mired in excessive inventory. Buyer’s market conditions have put a lid on home prices in the province. The average provincial MLS price fell 0.8 per cent from February to a seasonally-adjusted $512,100 and is within the 12-month range.

While more than 10 per cent below 2011 highs, average prices are highly volatile and changes can reflect shifts in the geographic distribution of provincial sales as well as the impact of price outliers.

The first quarter likely marked a cycle-bottom for home sales and we expect activity to trend higher for the remainder of the year. However, there is little to indicate an aggressive rebound.
Triggers of materially lower mortgage rates or rapid improvements in the economy are unlikely, while stagnant labour markets, tighter mortgage insurance rules and weak population growth will continue to impede demand.

Excess inventory will weigh on price levels, but further declines are expected to be modest. Sellers are generally in a position to be patient, given the persistence of low interest rates and steady employment, rather than sharply cut prices – which should limit supply growth.
Annual MLS sales are forecast to remain essentially unchanged from 2012 at 68,300 units.

Automotive
New vehicle sales in fell in February following a January uptick but held within the range observed over the past 12-months. Total new vehicles sales in the B.C. and Territories dipped to a seasonally-adjusted 14,630 units in February, marking a 5.5 per cent drop from the previous month.

The decline was led by pull-back in truck sales as passenger car sales held steady, advancing 2.8 per cent. While total sales over the first two months of 2013 were about 2 per cent higher than the same period in 2012, the underlying sales trend has decelerated from mid-year.
A slow growth economy, elevated debt, and tepid population and employment gains have likely deflated consumer spending despite low financing costs and aggressive pricing incentives.
Vehicle sales are a secondary indicator for the provincial economy, given a lack of provincial production and a signal of consumer willingness to make large-scale purchases. A dampening of trend is consistent with deterioration in broader economic activity and subdued labour market conditions. Going forward, sales will likely being driven by replacement demand.

Tourism
International tourist visits to B.C. held steady in February despite a dip in American entries as growth in the number of overseas visitors picked up the slack.

Total visits reached a seasonally-adjusted 357,660 tourists, up slightly from January and 5.7 per cent higher than February 2012. American visits slipped 1 per cent from the previous month.
February’s stable inflow of international visitors following a rebound in January suggests some positive momentum could be building in the tourism sector, contributing to acceleration in year-to-date gains to about 2.5 per cent.

However, overall levels remained low and broadly in line with post-recession levels. Tourism activity is expected to gradually rise through 2013 as improving economic conditions in the U.S. generate increased cross-border visits. But overall gains will be tempered by the elevated Canadian dollar and ongoing weakness in the European economy.

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