BC Economic Snapshot June 22, 2013

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VANCOUVER, BC, Jun 22, 2013/ Troy Media/ – Retail sales in B.C. slipped 0.7 per cent from March to a seasonally-adjusted $5.13 billion in April as lower vehicle and gasoline sales weighed on total volume. Sales were comparable to year ago levels in April, but activity through the first four months of the year was still down by a modest 0.2 per cent.

April was another weak reading for B.C.’s retail economy but activity has shown signs of an upturn in recent months following a second-half 2012 lull. Nonetheless, it has yet to break out of the range-bound trend observed since late-2011.

Retailers have recorded little improvement in sales despite an expanding population base, as customers have locked down their wallets amidst limited employment growth, lower home prices, and credit growth deceleration. Additionally, a relaxation of duty-free allowances may have also led to increased leakage of sales to the U.S. (Editor’s Note: see also our backgrounder BC retailers hit hard by cross-border shopping)

The numbers are even weaker once adjusting for retail price inflation, with real dollar volume still hovering near 2008 peaks. Growth in the underlying population suggests individual households have cut spending. Current-dollar sales growth for full-year 2013 is forecast to reach a subdued 1 per cent. This will mark the slowest gain since 2009 and come off a 1.9 per cent increase in 2012.

Inflation

After declining sharply in April due to the shift back to a PST tax system from the HST on April 1, B.C.’s consumer price index (CPI) edged up modestly in May. Seasonally-adjusted growth in the CPI reached 0.3 per cent during the month and led by a near 6 per cent month-to-month gain in gasoline prices, following the previous month’s 1.2 per cent contraction.

Year-over-year growth in the CPI (annual inflation) was negative for a second month, as prices declined 0.6 per cent from year-ago levels. Again, the contraction largely reflected the tax-regime shift, notably in restaurant meal prices, which were down 4.9 per cent, and some other services. The negative inflation reading does not signal a deflationary environment as the policy shift was a one-time event.

Monthly CPI will revert to its trend growth, albeit at a lower level. Annual inflation readings will continue to exhibit the effects of the policy change until April of next year. Recent fluctuations aside, annual CPI inflation fluctuated below 1 per cent in the eight months prior to the tax change. Low inflation trends will continue as a reflection of the slow growth economy.

Demographics


B.C.’s population grew to an estimated 4.65 million persons as of April 1, 2013, marking a gain of 0.2 per cent or 10,140 residents from January and an increase of 0.9 per cent from the same-period in 2012. Quarterly growth was consistent with the national performance, but lagged much stronger gains in Alberta and Saskatchewan.

International flows were the primary contributor to B.C.’s quarterly population gain, while the net natural increase (births minus deaths) was also positive. In contrast, the province continued to lose more residents to other provinces than it gained. First quarter population growth marked a continuation of the sluggish trends observed since mid-2010.

While the seasonally-adjusted annualized growth rate accelerated from the previous two quarters it remained below 1 per cent for a third consecutive quarter. Population growth has trended at or below 1.1 per cent since the end of 2010 and well below the range of about 1.4 to 1.8 per cent from 2006 through most of 2010.

Slower population gains have likely reflected uncertainties in the global economy and relatively weaker economic condition in B.C. relative to some prairie neighbours.

Significantly fewer landed immigrants to B.C. and non-permanent residents in recent years have dampened overall international migration levels, the backbone of population growth in the province. Some prospective residents have likely delayed their immigrations plans amidst uncertainty in the global economy.

Meanwhile, interprovincial migration remained negative in the quarter, marking an eighth consecutive net outflow. B.C. residents continued to flow to neighbouring Alberta and Saskatchewan, and their more robust labour markets. Low population growth will be a drag on overall economic growth in province, limiting gains in housing, retail and general consumer demand.

Housing

The nascent rebound in the provincial housing market gathered traction in May with a third consecutive increase in MLS housing transactions. Total home sales rose to a 10-month high of 5,740 units in May, up more than 4.5 per cent from April, and in line with same-month 2012 on a seasonally-adjusted basis. Increased sales in the Lower Mainland, Kootenay, and Northern B.C. sales led monthly growth.

Gains suggest demand is no longer declining, despite tight mortgage insurance rules and a slow growth economy. While the recent upturn has been aggressive, with sales up 14 per cent since a February bottom on a seasonally-adjusted basis, levels remain tempered and well below typical May norms. Through the first five months of the year, total year-to-date MLS sales were down 10.7 per cent from 2012, marking the slowest start to a year since 2009.

Market conditions in most B.C. regions continue to favour buyers and are conducive to softening prices, but the recent sales gain and a downtrend in listings is tilting markets closer towards balance. Areas within the recreation-heavy Thompson-Okanagan and Vancouver Island remain weak, but conditions have recently tightened. B.C.’s housing market is transitioning towards a stable but low volume environment. Monthly sales growth is expected to taper off, but tightening market conditions will stabilize price trends. The average MLS price in May reached $517,850, up 0.9 per cent from April.

Levels are still down 11 per cent from early-2011 peaks, but this largely reflects geographic and product-composition effects, rather than pure price changes. Superior metrics of home prices, including the Teranet-National Bank HPI and MLS HPI, which are available for Vancouver, suggest a more modest decline of about 3.3 per cent from peak. Central 1 expects 2013 provincial home sales and price levels to edge slightly below 2012 levels on a full-year basis.

Tourism

International tourist visits to B.C. eased for a second straight month in April to extend the modest downtrend observed since the beginning of the year. Total entries reached a seasonally-adjusted 351,970 tourists during the month, a 0.5 per cent decline from March as a drop in U.S. visitors offset a modest uptick in overseas travellers.

Tourist visits remained in line with the shallow levels observed following the Olympics of about 350,000 visitors per month, but still well off the more than 400,000 visitor pace prior to 2007. Through April, total visits were up 1.4 per cent from same-period 2012, led by a 4 per cent gain in U.S. visitors. The pace of tourism visits will gradually shift higher as the U.S. economy improves and Canadian dollar depreciates.

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