BC Economic Snapshot June 29, 2013

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VANCOUVER, BC, Jun 29, 2013/ Troy Media/ – Consumer insolvencies in B.C. in April were unchanged from March, reaching a seasonally-adjusted 965 filings. The pace, which includes both bankruptcies and consumer proposals, remained in line with the range-bound trend observed since late-2012, but was 9 per cent lower than the same month in 2012 – marking an extension to the gradual but choppy descent from the recessionary peak in 2009.

Despite the general easing, insolvencies remained higher than the previous cycle-peak observed in 2002. While part of this reflects a larger population base, per-capita insolvencies remained near previous highs of 25 per 100,000 persons. Elevated insolvencies point to modest financial strains in an environment of high household debt and dismal employment growth, factors which have also tempered the pace of consumer spending in the economy.

Marginal economic and employment growth and persistently low short-term interest rates this year will continue to generate downward pressure on insolvencies, but declines will be shallow.

Debt
Mortgages in arrears data provide another indicator of the state of household finances and were consistent with insolvency trends. Albeit a lagging indicator of the economy, the proportion of B.C. mortgages in arrears by three months or more remained low at a miniscule 0.45 per cent of the mortgage pool in March.

While unchanged since December, the rate was elevated when compared to pre-recession lows of near 0.15 per cent and historical norms. A gentle easing pattern in the B.C. arrears rate since 2010 has been modest at best, particularly when compared to significant improvements in the rest of Canada, which likely reflects some underperformance of the economy, labour markets and higher home prices.

That said, a significant increase in nonperforming mortgages over the next year is unlikely. The economy is expected to grow modestly and, more importantly, households are unlikely to encounter significant interest rate shocks.

Short-term interest rates will remain exceptionally low given the expected persistence of the Bank of Canada’s 1 per cent policy interest rate. Although bond yields are on the rise homeowners are likely to find renewal interest rates lower than their pre-existing rates – notwithstanding changes in rate discounts.

Jobs
Average weekly earnings data were reported for April and the numbers weren’t all that promising for B.C. workers looking for that elusive pay bump.

Weekly earnings reached an estimated $874 during the month, marking a rebound from March, but extended the flat to negative trend observed since the turn of the year. Reflecting the weak labour market, wage gains were up only 1.8 per cent from same month in 2012, which was significantly below the national average of 2.2 per cent.

Through April, year-to-date earnings were up about 1.7 per cent over the same period in 2012, compared to a gain at the national level of 2.4 per cent that was led by Newfoundland-Labrador, Saskatchewan and Alberta.

While industry composition influences average wage gains, stronger labour markets and wage gains in the prairies have been a powerful draw for B.C. workers, factoring into a net outflow of B.C. residents to other provinces.

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