BC Economic Snapshot February 23, 2013

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VANCOUVER, BC, Feb. 23, 2013/ Troy Media/ – Subdued economic conditions continued to generate low inflationary pressure in January. Consumer price levels in B.C. have drifted lower since April, contributing to 12-month growth in the consumer price index (CPI) of 0.3 per cent, down from 0.4 per cent in December.

Food inflation has eased, while lower year-over-year prices related to shelter and energy components of the CPI, particularly natural gas, have also contributed to exceptionally low headline inflation rates unseen since late 2009.

Average full-year inflation is forecast to reach 1.2 per cent this year, reflecting rising prices as the year progresses. While the switch back to the PST is expected to causing a one-time drop of about 0.3 per cent in the CPI, the tax impact will be offset by global-economy led gain in food and energy prices.

Retail
Retail sales volume in B.C. fell sharply in December in a sign that consumers were less than enthused to open their wallets this holiday season. Adjusted for normal seasonal factors, retail sales dipped 0.9 per cent from November to $5.07 billion. This was the sharpest monthly decline since June, but still compared favourably to the national performance which plunged 2.1 per cent over the same time frame.

December sales weakness was evident across most sectors, although retailers of general merchandise, recreational products, and electronics and appliance were particularly hard hit. Housing-related activity also pulled back sharply after a November bounce.

On the whole, consumers battened down the hatches through 2012 with a general easing of activity through the year. Annual retail sales growth fell to 2.2 per cent, down from 3.1 per cent in 2011 marking the weakest provincial gain since the 2009 contraction, and about half of the average annual gain of 4 per cent since 2000. This was led by weaker housing associated spending. Sales activity was higher in the Vancouver CMA, which recorded a 3.7 per cent gain reflecting a relatively stronger economy and population growth.

Once higher product prices are factored in, real retail sales growth grew by about 1.4 per cent. Population growth of about 1 per cent means individual households generally held a tight rein on spending as economic uncertainty and slow housing market weighed.

We forecast retail sales growth to perk up to 4.2 per cent this year. While employment and population growth will remain below average, growth in personal income and shift back to a PST should provide a modest boost to the retail economy.

Tourism
B.C.’s tourism sector took a hit in December as international tourist entries to the province fell to a five-month low of 340,060 persons (seasonally adjusted), down 3 per cent from November, but still up 2.4 per cent from same-month 2011.

The monthly decline was led by a sharp drop in American tourists, which tumbled 6 per cent to 224,310 visitors which may have reflected some pull-back in light of political uncertainty. The U.S. decline was partly offset by a 2.9 per cent gain in overseas visits.

Despite December’s pull-back, the province still managed to eke out a small annual gain of just over 1 per cent in 2012. U.S. visits edged up 0.9 per cent, while overseas visits gained 1.9 per cent. Latter gains were dampened by fewer European visitors, which is not surprising given economic turmoil in that part of the world.

In contrast, the number of visitors from Asia rose 3 per cent on another surge in Chinese tourism (18 per cent) and a rebound in Japanese visits. Visits by Australian and New Zealand tourists increased by 6 per cent.

Nonetheless, with only 4.22 million overnight visitors from international markets, 2012 marked another challenging year for the provincial tourism sector. The annual tally was broadly in line with post-recession levels, but remained more than 10 per cent below the average observed from 2003 through 2007, largely due to fewer U.S tourists.

December’s weak performance and hand-off to 2013 suggests little in the way of momentum for B.C.’s tourism economy this year and the economy is generally unsupportive of a substantial rebound going forward.

While the re-emergence of Vancouver as a port of call for Disney cruises in 2013 and announcement of TED Talks for 2014 are positive, the U.S. labour market, high Canadian dollar, and global economic uncertainty will remain persistent headwinds. On the positive side, tourism, like other exports, is expected to pivot more towards Asian markets, particularly China, which should remain a source of robust demand.

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