BC Economic Snapshot Dec. 15, 2012

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VANCOUVER, BC, Dec. 15, 2012/ Troy Media/ – B.C. merchandise exports to international markets held steady in October, edging up 0.4 per cent from September to a seasonally-adjusted $2.73 billion. This followed a sharp prior month gain and marked the highest monthly figure since January.

Gains in metallic and non-metallic mineral products, forestry, and farm/fishing and other intermediate products offset pull-backs in energy and raw metal ore/non-metallic minerals.
Despite the uptick, export volume remained lower than 2011 highs in both current-dollar and price-adjusted terms. October’s stable export performance contributed to a narrowing of year-to-date export declines to 2 per cent from 2.5 per cent in September.

Lower export activity this year has reflected lower product prices and shipments, particularly for energy products which were down 14 per cent through October and processed metal and non-metallic mineral products (-10.5 per cent).

The recent bump in export activity has led to decelerating growth in the province’s merchandise trade deficit. However, monthly levels remained high at about $900 million on elevated imports and generally weak exports. In comparison, the merchandise trade deficit was about $550 million in mid-2011. B.C.’s export performance follows the ebb and flow of the global economy and there is reason to expect improvement in 2013.

Natural gas prices, while low, are rising from exceptionally weak early-year levels, suggesting an easing of the energy drag.

Meanwhile, the U.S. housing market continues to recover. The consensus forecast for new home starts in 2013 is nearly 960,000 units, up 25 per cent from 2012, leading to increased demand for wood products and higher associated prices. This will extend the recent export uptrend in B.C.’s forestry sector.

Meanwhile, China’s economy looks to be picking up speed following its growth slowdown. Government spending on infrastructure and affordable housing could provide a boost to general commodity demand and forestry.

A key risk to the external economy is the looming U.S. fiscal cliff, which if unaddressed will automatically lead to higher taxes and spending cuts in the new year and drag down a U.S. economy growing at only 2 per cent and by extension negatively impact its trading partners.
Our working scenario is that only a portion of the fiscal cliff will come into effect in the first quarter of 2013. Another scenario is for a continuing resolution to extend the status quo for about six months, allowing the Obama administration to come up with a plan for long-term fiscal sustainability.

Housing
The pace of new home starts in B.C. slowed for a third consecutive month in November as builders broke ground at a seasonally-adjusted, annualized pace of 22,300 units, down 16.5 per cent from October.

November’s decline largely reflected a pull-back in Metro Vancouver, which recorded a 28 per cent decline in activity as fewer townhome and apartment projects got under way.
Monthly housing starts are notoriously volatile which reflects the significant impact of large apartment and townhome projects in any particular month. Underlying trends suggest a modest decline in the pace of provincial housing starts has taken root.

While activity remains elevated in Metro Vancouver, particularly in the multi-family sector, a weak resale market, elevated inventories and slower pre-sales have likely caused builders to slow the pace of construction. Meanwhile, aggregate housing starts in the rest of the province also crested following a first-half uptrend in activity.

Last week’s review of residential building permits showed a downtrend in building intentions which should translate into lower new home activity going forward. Housing starts will continue to trend lower as builders adapt and respond to weak market conditions, oversupply, and lower demand caused in part by tighter lending guidelines and mortgage insurance rules implemented earlier this year.

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