BC Economic Snapshot Sept. 8, 2012

VANCOUVER, BC, Sep 8, 2012/ Troy Media/ – Estimated employment in B.C. bounced back in August, erasing the sharp decline observed in July. Total employment rose by an estimated 14,900 persons (0.6 per cent) from July to 2.32 million persons.

While the month-to-month gain was significant, employment reverted back to a level consistent with post-April levels. Gains were led by a 3.8 per cent increase in part-time employment, while full-time employment was flat.

Growth was broad-based among industries, with the most significant gains in transportation/warehousing, and surprisingly, public administration. In contrast, manufacturing employment fell by 7,400 persons (3.9 per cent), but was still up 11 per cent from August 2011.

Smoothing out July’s employment decline, which may prove to be a statistical anomaly, net total employment growth has been negligible in recent months and consistent with broader economic factors including increased global economic uncertainty, and tempered retail sales and weaker housing conditions.

Average year-to-date growth remained steady at 1.9 per cent relative to the first eight months of 2011. Growth has been concentrated in the full-time sector, which was up 3.2 per cent from same period 2011, which offset a 2.5 per cent decline in part-time employment, suggesting a recovery in job quality.

August employment gains pared the provincial unemployment rate to 6.7 per cent, down from 7 per cent in July, but in line with the range observed through the first eight months of the year.

Construction

Building permit volumes in B.C. surged in July on growth in both the residential and non-residential sector. Total volume rose 14 per cent from June to an estimated $1.06 billion.

Residential permit volume rose to the highest level since mid-2010, fuelled by permits for apartments, which rose 26 per cent from June to nearly $365 million. Apartment permits have been well ahead of last year’s pace, up 53 per cent through July.

Recent gains suggest that housing starts could continue to trend higher in the months ahead. However, the recent tightening of mortgage insurance rules and weak sales activity is expected to generate to a lagged moderation in this trend in the quarters to follow.

Meanwhile, non-residential permit volumes also rose in July, jumping 22 per cent from June as a sharp jump in commercial activity offset declines in public-sector and industrial activity. Non-residential permit activity has outpaced 2011 by 27 per cent through July, largely reflecting major industrial project starts in the north as well as well as expansions of hospitals and health facilities in the Lower Mainland.

Housing

The downtrend in Lower Mainland home sales re-intensified in August following a brief pause in July, as the full impact of recent tightening in federal mortgage insurance rules likely weighed on sales activity.

MLS sales in the Metro Vancouver and Abbotsford/ Mission region (Lower Mainland) plunged to the weakest pace since early 2009, falling 12 per cent from July to a seasonally-adjusted 2,715 units and 27 per cent from a year ago.

Notwithstanding the recession-induced drop in sales in late-2008 and early-2009, population-adjusted sales declined below previous cycle-lows observed in the late 1990s and early-2000s.

While the pace of new listings continued to trend lower in light of weaker market conditions, there has been a gradual rise in month-end inventories. Active listings at the end of August rose to the highest level in more than three years. The sales-to-active listings ratio, which is a near-term indicator of price movements, has dropped to the lowest level since early-2009 and is at a level consistent with price deflation – which has already been reflected in a third straight monthly decline in the MLS Home Price Index (HPI).

On a seasonally-adjusted basis, the HPI fell 0.6 per cent from July, and was down about 1.2 per cent from the May peak. Subdued housing sales are forecast to persist into 2013, but the trend is expected to rise from current levels.

While tighter mortgage insurance rules will continue to weigh on activity, current levels are inconsistent with year-over-year gains in employment, low mortgage rates and positive economic growth and are likely a reflection of weak consumer confidence.

Despite higher sales, downward pressure will persist. We expect a temporary peak-to-trough decline in the HPI of about 5 per cent, with a more significant decline in the apartment sector. Price declines are expected to be tempered by supply-side adjustments.

The downtrend in new listings activity is forecast to persist, taming inventory growth. In the absence of a sharp rise in unemployment or another recession, weaker sales and prices are expected to push prospective sellers to delay property listings or allow current listings to expire, pushing inventories lower.

Small Business

Wobbly business optimism in B.C. absorbed another body-blow in August, according the latest CFIB Business Barometer reading. Confidence of small-to medium-sized enterprises tumbled for a second straight month, and declined for a third.

The index fell to 56.4 points on a scale of 0 to 100, down 4.1 points from July, and 8.7 points below same-month 2011. While still well above the recession-low, August’s index level was the lowest level since April 2009.

While index levels above 50 still mean that, on balance, the number of businesses expecting stronger business conditions outnumbered the ones expecting weaker conditions, the sharp deterioration is clearly indicative on increased business pessimism. Weakening domestic retail and export trends along with a broader slow-growth Canadian economy, a deepening Eurozone recession, and soft conditions in the U.S. and Asia have likely tempered business expectations for the year ahead.

The Business Barometer is well-correlated with annual economic growth for B.C., and current trends are generally consistent with Central 1’s forecast for sub- 2 per cent GDP growth this year.

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