BC Economic Snapshot January 12, 2013

---

VANCOUVER, BC, Jan. 12, 2013/ Troy Media/ – The value of B.C. goods shipped to international markets slipped in November following two months of gains as export volume dipped to a seasonally-adjusted $2.7 billion, down 1 per cent from October. A sharp rebound in energy-related shipments and gains in forestry and machinery did not offset a plunge in mining- and agriculture-related shipments.

November’s pull-back deepened the year-to-date export decline to 2.2 per cent, which is expected to grow to about 2.5 per cent once December is included – the first annual decline since 2009. Lower export activity in 2012 reflects declines in shipments and prices of energy-related and processed mineral products. In contrast, the forestry sector has recorded stable shipments and higher prices, while machinery exports have posted strong gains.

Price-adjusted exports in 2012 likely fell by about 1 per cent. While B.C. export activity remains below 2011-highs, due in large part to lower commodity prices, the underlying trend seems to have picked up in recent months despite November’s dip.

Continued growth in exports performance is expected for in 2013. Natural gas prices moved higher in second half of 2012 which should translate into higher energy volumes. Meanwhile, the U.S. economy, business investment, and new home market in particular continue to recover.
The consensus forecast for new home starts in 2013 rose to nearly 980,000 units in December. If realized, this would mark a more than 25 per cent gain from 2012, and underpin increased demand for wood products and higher associated prices.

The U.S. performance should support machinery exports and extend the recent forestry sector export uptrend. 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.

Housing
Urban B.C. housing starts fell to a seasonally-adjusted annualized rate of 20,200 units in December, marking an 8.2 per cent dip from November and a third consecutive monthly decline.

Starts in the Vancouver Census Metropolitan Area (CMA) fell 2.2 per cent, while combined urban-B.C. activity outside the region pulled-back 21 per cent following a November surge.
Despite the recent pull-back, total urban starts finished the year up 4.5 per cent from 2011 at 25,477 units, led by gains in the Vancouver CMA (6.5 per cent) and higher activity in the northern interior and northeast regions, including Prince George (34 per cent), Fort St. John (57 per cent) and Dawson Creek (77 per cent).

December’s pace of housing starts was the slowest in more than two years, and while monthly activity can fluctuate significantly due to multi-family apartment and townhome project starts, the underlying pace has clearly fallen in recent months. This suggests builders, particularly those in the Vancouver region, are making necessary adjustments in response to weak housing demand and high levels of resale and new home inventories.

Resale activity in the Lower Mainland is trending near-recession lows while resale inventory has risen providing a challenge for the new home sector. New home inventory in the Vancouver CMA rose above 3,800 units in November, which surpassed the early-2011 high and is consistent with levels observed in the early 2000s.

The number of units under construction has also climbed, pointing to further gains in inventory under current demand conditions. Meanwhile, inventory in larger urban markets outside Vancouver has recorded only a moderate easing since 2008 and remains at elevated levels given the persistence of weak demand.

The softening trend in housing starts is expected to persist going forward, dictated by lower activity in Vancouver. Market uncertainty is expected to lead to delays and phasing of existing projects while projects in the early-stages of marketing are likely to face a challenging pre-sale environment, leading to delays in project financing availability and construction.
Slowing construction and potential purchase incentives should alleviate upward pressure on new home inventories later this year.

Construction
B.C. building permit volume fell for a second consecutive month in November as a sharp contraction in non-residential building intentions more than offset a rebound in residential activity. Total building permit volume reached a seasonally-adjusted $822.5 million, marking a 6 per cent drop from October and the lowest level since March. While monthly permits are naturally volatile, the trend has been negative since May.

Residential permits activity recorded the first monthly gain since July as the value of apartment permits rebounded 17 per cent following a sharp October slide. Despite the increase, permit value remain relatively low and supports our expectation that new home high inventory.
Meanwhile, non-residential permit volume fell sharply for a second consecutive month to $262.6 million, down 33 per cent as industrial volume pulled-back following a significant permit issuance in the North Coast region of the province in October.

Through the first 11 months of the year, total permit volume was up nearly 19 per cent from same-period 2011 led by the Lower Mainland-Southwest and North Coast regions. Residential permits rose 10 per cent, while non-residential permitting was 36 per cent higher due to a more than doubling of industrial activity and a sharp increase in commercial permits.

| Central 1 Credit Union