The decline was led by a two per cent tumble in the number of part-time employed individuals, while full-time employment also dipped by 0.3 per cent. At the industry level, goods-sector employment slumped by 2.1 per cent on construction and resource sector pull-backs, but followed two months of gains and remained within the 12-month range. In contrast, the service-industry observed a more modest drop of 0.3 per cent, but that sector has consistently shed jobs since mid-2012.
January’s employment decline is clearly a discouraging indicator of the economy, and not quite the start to 2013 we were looking for. However, top-line employment figures mask at least two positive trends. While total employment contracted, total hours worked in the economy have generally trended higher which points to some consolidation of jobs and greater labour utilization. Real hours worked in the economy have increased despite the contraction in employment levels. In addition, the unemployment rate fell to 6.3 per cent in January, down 0.1 percentage points from December and was well off the rate of 7 per cent recorded in same-month 2012.
While labour market conditions are temperate at best, the steady unemployment rate points to greater stability than suggested by employment estimates alone. When the labour force declines, usually employment and unemployment do as well and when the labour force increases employment usually follows. This co-movement between employment and the labour force occurs since it is a sample and not a census of households, and could explain some of the significant movements in the data.
Arguably, weak employment growth may have led some discouraged search for work but that does not explain the near-synchronous relationship.
Trade
Exports of B.C. goods to international markets exited 2012 on a soft note as the value of shipments fell for a second consecutive month in December. Total export volume fell 2.5 per cent from November to a seasonally-adjusted $2.61 billion as energy shipments declined 25 per cent following a large previous month gain, while forestry-related and manufacturing exports also stepped back. In contrast, processed and unprocessed mining-related exports rose along with consumer goods.
December’s weakened pace pushed annual international exports down to $31.7 billion in 2012, marking a 3 per cent drop from 2011 and the first decline since 2009. Lower activity reflected declines in shipments and prices of energy-related and processed mineral products. In contrast, the forestry sector recorded stable shipments and higher prices, while machinery exports posted strong gains.
Price-adjusted exports in 2012 likely fell by about 1.5 per cent. Export growth will remain tempered in 2013 but is forecast to trend higher. 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 which should support machinery exports and extend the recent forestry sector export uptrend. China’s economy looks to be picking up speed following its slowdown. Government spending on infrastructure and affordable housing could provide a boost to general commodity demand and forestry.
Housing
The turn of a new year did little to boost Lower Mainland housing market activity as buyers stayed on the sidelines and prices eased for an eighth consecutive month. Total MLS residential sales in the region, which spans real estate boards in Metro Vancouver and Abbotsford-Mission, reached a seasonally-adjusted 2,810 units in January.
While up two per cent from December, unadjusted sales were 17 per cent lower than same-month 2012 and marked the slowest start to a year since the recessionary period of 2009.
The continuation of a soft sales environment was met with a burst of new listings in January as some sellers likely tried their luck again following the holiday season. While the underlying new listings trend remained negative, the uptick pushed resale inventory higher for the first time in three months.
Slightly higher sales kept supply-demand imbalances steady, but with a sales-to-active listings ratio of about 11 per cent, general market conditions remained among the weakest since the recession.
The frigid sales pace has not led to a steep price decline, but there has been a slow melt since May. The MLS benchmark home price fell to a seasonally-adjusted $537,300 in January, marking a 2.7 per cent decline in the corresponding home price index since a May peak and has retraced back to May 2011 levels.
The slow start does not bode well for a significant recovery in the housing market this year. Home sales are expected to trend higher from exceptionally weak levels, but remain restrained as tighter mortgage insurance rules continue to dampen first-time buyer activity, and by extension, weigh on move-up buyer activity. We forecast annual MLS sales in the region to fall about two per cent from 2012 levels despite the uptrend.
While market conditions will continue to weigh on home prices, downside risk is expected to be limited to a further five per cent during the first half of 2013, marking a reversion to 2010 levels. Supply-side adjustments are expected to alleviate weak demand.
Current economic and labour market conditions, while modest, do not point to a jump in the pace of already distressed sales. Prospective sellers are expected to pull listings if price levels do not meet minimum expectations.
Meanwhile, equity constrained first-time buyers may find an unwillingness or inability among post-2007 buyers of condominium and townhome buyers to lower prices. Unlike detached home prices which surged in 2011, multi-family home prices have generally remained unchanged, with the exception of the sharp deviation during 2008/09.
Price cuts to meet the lower borrowing capacity of buyers since July, along with associated transaction costs, will cut into homeowner equity, and impede the ability of recent buyers to move upmarket. Expect owners in this market segment to remain relatively immobile in the short term, and curtail listings activity.
Buyers looking for deals may have better luck in the new home market. Elevated inventories suggest developers may be more willing to offer purchase discounts and sales incentives to move product off their books.
Construction
Dollar volume of building permits issued by B.C. municipalities fell for a third consecutive month in December as non-residential activity pulled back sharply, and residential builders slowed activity. Total building permits reached an estimated $697.5 million which marked a 14.5 per cent decline from November, and extended the downside momentum observed since May.
December’s drop was led by another slowdown in non-residential activity, which fell 27 per cent from November to $191 million on lower commercial and public-sector building intentions.
While monthly non-residential activity is highly volatile given the infrequency and variable size of projects, volume generally trended lower since mid-2012. Early year highs were associated with commencement of megaprojects in the North as well as hospital expansions in the Lower Mainland. Meanwhile, residential builders continued to slow production as associated permit activity fell 8.5 per cent.
The ongoing deceleration in permit volume supports our view that new home construction will further pull back in light of weak market conditions and high inventory.
Despite downside momentum in the latter half of the year, total permit volume in 2012 rose 16 per cent relative to 2011 and was the highest since 2008. Substantial gains in industrial and commercial activity led a 29 per cent gain in non-residential activity, while residential growth was a more modest 10 per cent. Stronger building intentions in early 2012 will drive positive momentum in investment through the first half of 2013 as some projects reach the peak construction stage before easing in the latter stages the year.
Eroding residential permit volume has already translated into fewer housing starts in recent months. Housing starts in urban B.C. markets reached a seasonally-adjusted annualized rate of 21,850 units in January. Although this was 7.7 per cent higher than December, the pace over the past three months has slowed significantly from mid-2012 reflecting fewer apartment projects breaking ground.
| Central 1 Credit Union
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