BC Economic Snapshot July 6, 2013

VANCOUVER, BC, Jul 6, 2013/ Troy Media/ – B.C.’s labour market played catch up in June and turned in a solid month of employment creation after lagging the rest of the country in May.
Estimated provincial employment rose to the highest level since September, reaching a seasonally-adjusted 2.32 million persons in June. This marked a gain of 8,900 persons or 0.4 per cent from May, led by a rebound in full-time jobs and youth employment.

Provincial unemployment fell to a five-month low of 6.3 per cent. Employment in Metro Vancouver fell 0.2 per cent in June marking a second monthly decline, but was offset by gains elsewhere in the province, particularly on the Island and Cariboo.

Among B.C. industries, growth was a mixed bag with significant employment swings, both up and down. Agricultural employment rebounded from May’s decline by adding 5,300 persons (21.8 per cent), while retail and wholesale trade employment increased by 12,200 persons (3.2 per cent). On the flip-side, losses were recorded in information, culture and recreation, which plunged by 15,800 persons (13.5 per cent) and public administration, which declined 6 per cent by 7,900 persons.

June’s topline employment growth was generally encouraging and suggests a positive turn for the provincial labour market as employment levels broke out of the narrow range observed over the past year. However, caution is still warranted given that monthly estimates fluctuate significantly and only time will tell if the gains are real or a statistical blip. Positive trends in export and housing sectors suggest we could be seeing more of the former.

Despite the positive news, the labour market remains sluggish at best. Employment was still down from year-ago levels in June, and average growth through the first six months of the year was less than 0.1 per cent – which is essentially nil. The only silver lining has been stronger but still negligible gains in full-time employment.
Annual declines in the unemployment rate reflect a lower labour force participation rate rather than a tightening market. Some prospective workers may have stepped back from the labour market given weak job prospects, rather than join the ranks of officially unemployed. Central 1 forecasts employment gains of only 0.5 per cent this year and a gain of 1.4 per cent next year as tempered economic growth weighs on hiring.

Trade
Higher energy and mining shipments pulled B.C. exports up in May following April’s retrenchment. Total goods exports to international markets rose to a seasonally-adjusted $2.83 million in May, up 7.5 per cent from April. Export trends are approaching 2011 highs in both current- and constant-dollar measures, pulled along by the U.S. economic recovery and increased exposure to China.

Monthly volume is volatile, but activity has consistently held above last year’s levels and year-to-date shipments through May were up 4.8 per cent. About 2 per cent of this gain reflects actual product shipments with the remainder due to higher export prices.

Year-to-date gains have been led almost entirely by forestry products which were up $692 million (16.6 per cent), raw mining output, up $250 million (28 per cent), and agriculture-related shipments, up $96 million (25 per cent). Manufacturing exports also increased significantly, but represent a small fraction of the overall export pie.

B.C.’s export sector is currently in a modest recovery phase following a late-2012 lull, but will contribute only modestly to growth this year. Export growth has only slightly outpaced import growth, maintaining a merchandise trade deficit largely unchanged from last year at about $4 billion over the first five months of the year.

Housing
The wobbly Lower Mainland housing market showed further signs of improvement in June with another gain in sales and uptick in prices. MLS sales in Metro Vancouver and Abbotsford-Mission (Lower Mainland) rose more than 8 per cent from May to about 3,490 units seasonally-adjusted, extending the ongoing recovery from February’s low.

Monthly sales posted the first year-over-year gain in more than a year. While on the surface this is positive, recall that last June’s sales were the weakest since 2000. Even with a 4 per cent year-over-year gain, June sales are at the lower-end of the range observed over the past 15 years.

Although the market remains undeniably weak, market conditions tightened with MLS inventory falling on rising sales and relatively few new listings in June. Seasonally-adjusted active listings fell for a fourth month, and were 5 per cent lower than the same month in 2012.

While the sales-to-active listings ratio is still at a level associated with price declines, the speed of adjustment has stabilized prices. The MLS Housing Price Index (HPI) rose for a fifth consecutive month to a benchmark value of about $542,700 and has gained about 2 per cent since the beginning of the year. Much of the gain is seasonal, but seasonally-adjusted prices also rose in June following a year of declines.

The housing market recovery has advanced more quickly than anticipated. The size of last month’s sales gain was a surprise, given underlying trends of a weak economic environment and job market, but expectations of mortgage rate hikes may have pulled some buyers off the fence. We expect decelerated sales growth going forward.

Annual MLS sales are forecast to edge slightly higher this year from 2012, but remain near decade lows, reflecting the low-growth economy, lack of employment growth, and weak population gains.

There are few signs of an impending housing price crash. There is still room for marginal declines given ongoing affordability imbalances, but the market has seemingly turned in the proverbial soft landing. Sales are low but on the rise, while supply has dialled back.

Persistence of weak interest has some sellers taking their homes off the market rather than deal with the hassles of maintaining their listings. Without a sharp labour market or interest rate shock, most home sellers have the luxury of time and can afford to be patient, limiting over-supply and downward price pressure. We expect further price declines to be limited to about 3 per cent, bringing the benchmark price to just under $520,000 and a decline of 6 per cent from last year’s peak.

| Central 1 Credit Union