BC Economic Snapshot July 14, 2012

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VANCOUVER, BC, Jul 14, 2012/ Troy Media/ – Current-dollar export volumes of B.C. goods to international markets fell 1.1 per cent from April to a seasonally- adjusted $2.61 billion in May, extending the general decline observed since the latter half of 2011.

Declines were led by a 7 per cent drop in forestry-related goods and a 5 per cent retrenchment in energy exports. Offsetting this was a rebound in industrial goods and materials, and a 9 per cent gain in exports of machinery and equipment. An approximate constant-dollar estimate suggests May declines reflect a slump in product shipments rather than prices, particularly in forestry which has been impacted by slower growth in the global economy.

The slowing pace of current-dollar exports over the past nine-months is a result of fewer shipments and lower prices, which have narrowed year-to-date growth to 2.2 per cent, compared to same-period in 2011. If export trends hold steady, year-to-date activity will turn negative by July.

The outlook for B.C. remains tempered given the soft patch in the global economy and low natural gas prices. The European recession has deepened, pulling down exports and growth in emerging economies and in the U.S. Meanwhile, Chinese growth has also slowed, forcing authorities to implement stimulative policy measures.

The impact of China’s growth slowdown has already been observed in a cresting of lumber and log exports from B.C. in recent quarters, while lumber exports to the U.S. are also trending lower this year.

Meanwhile, natural gas prices remain low, reflecting a major supply glut in the U.S. – a situation that is unlikely to reverse in the near future given the massive shale deposits in North America. Current-dollar natural gas exports were down 39 per cent from 2011 on a year-to-date basis through May.

Housing

A flurry of apartment activity boosted B.C. housing starts for a third consecutive month in June.


Builders broke ground at a seasonally-adjusted annualized rate of 34,100 units marking a 31 per cent gain in urban B.C. housing starts. A 44 per cent increase in multi-family activity more than offset a small dip in single-detached starts.

In contrast to May, the surge in multi-family starts was not confined to Vancouver, with the rest of the province recording an increase of 65 per cent in combined urban area starts.

While the surge in June housing starts was not unexpected given the increase in May residential building permit volumes (reported last week), the pace is unlikely to be sustained in the quarters ahead. Housing demand in Metro Vancouver has tumbled in recent months and new home inventory is high relative to the past decade (unadjusted for population). This is expected to give builders and developers reason to slow the pace of new construction.

Outside Metro Vancouver, housing starts remain near recession lows. While demand is picking up in some markets and new home inventory is stable-to-declining in areas like Kelowna, Nanaimo and Abbotsford, markets in general remain weak and oversupplied. This will limit expansion of the housing stock.

We forecast annual housing starts in B.C. to remain steady this year at 26,700 units, up 1 per cent from 2011. Starts are forecast to rise 5 per cent next year, but remain tempered at 28,000 units.

As well, led by waning demand in the Lower Mainland, MLS sales in B.C. fell for a third consecutive month in June to a seasonally-adjusted 5,570 units. This was a 3 per cent dip from May and marked the lowest monthly pace since mid-2010.

Activity outside the Lower Mainland showed greater stability. Sales in the Central and Southern Interior edged down 0.7 per cent, while activity in the north fell 2 per cent. Vancouver Island, including the Capital region, recorded a 1.3 per cent increase in sales.

Housing market conditions remain unquestionably weak in most regions of the province, with most areas characterized by an excess supply of existing and new homes for sale.
However, it is not all gloom. Despite slower sales over the past two months, market conditions in the north are relatively balanced and a positive outlook for capital investment related to commodities and global trade is expected to support housing demand going forward.

Meanwhile, sales activity in the Okanagan and other parts of the Interior is stable or rising, although they are still heavily entrenched in a buyers’ market. Across the province, sliding sales this year and a stronger start to the year in 2011 have led to a 9 per cent drop in first-half activity, relative to the same period in 2011.

While the pace of sales is expected to continue to slip in the months ahead, reflecting a tightening of mortgage insurance rules, sales trends should improve later in the year as positive employment trends observed in recent quarters, low mortgage rates, and a rebound in consumer confidence translate into stronger demand.

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