BC Economic Snapshot Aug. 24, 2013

VANCOUVER, BC, Aug 24, 2013/ Troy Media/ – Retail spending in B.C. rose in June for a second straight month to push above the range-bound trend observed since early 2012. Led by new car sales, sales volumes reached a seasonally-adjusted $5.23 billion in June, up 1.3 per cent from May and a marked contrast to the 0.6 per cent national decline.

The pickup suggests a mild improvement in consumer spending growth in the second quarter, but underlying demand still remains tepid. While sales were up 2.7 per cent year-over-year, national growth was more than 3 per cent, and through mid-year, year-to- date sales were unchanged from year ago levels.

Metro Vancouver has fared worse than the rest of province, contracting 1 per cent over the first half. Add in inflation and only minor population growth over the same period and real per capita growth declined over the same period. In short – retailers continue to suffer.

Weak retail activity will persist as consumer demand lags on poor employment and population growth, high debt loads, low credit growth and stagnant home prices. Additionally, a relaxation of duty-free allowances may have also led to increased leakage of sales to the U.S.

Current-dollar sales growth for full year 2013 is forecast to reach only a subdued 1 per cent. This will mark the slowest gain since 2009 and follows a 1.9 per cent increase in 2012. Expect growth of below 3 per cent in 2014, reflecting higher inflation and moderate gains in consumer spending.

CPI
Higher energy prices pinched consumer wallets in July to boost general consumer prices for a third consecutive month. Gains in natural gas and gasoline prices accelerated monthly growth in the consumer price index to a seasonally-adjusted 0.3 per cent: outpacing the national gain of 0.2 per cent. Since April the provincial CPI has risen about 0.7 per cent.

The recent uptrend in prices brought the CPI back to the same level observed in July 2012, following three negative year-over-year readings. Year-over-year declines over the past few months do not signal a deflationary environment. The negative annual reading in recent months primarily reflect B.C.’s shift in April back to a PST system from the HST, which lowered after-tax prices for a significant number of goods and services, notably restaurant meals. Annual inflation readings will be tempered by the effects of the policy change until April of next year.

On a year-over-year basis, food prices were down 1.1 per cent. This was driven by a 4 per cent decline in restaurant meals, while groceries were higher. Declines were also seen for personal care and health products (-2.9 per cent) and homeownership replacement costs (-2.3 per cent) which have reflected declines in home prices. In contrast, gas prices were 7.3 per cent above year-ago levels, and natural gas was up 6.4 per cent.

Recent energy price growth aside, B.C. continues to operate in a low consumer price inflation environment. Monthly growth is trending at an annualized 0.6 per cent and annual CPI inflation fluctuated below 1 per cent in the eight months prior to the tax change. Low inflation will continue to reflect B.C.’s slow growth economy, averaging 0.2 per cent this year and just over 1 per cent in 2014.

Tourism
B.C.’s struggling tourism sector showed improvement in June with the largest inflow of international visitors in more than three years.

Monthly international tourist visits surged to a seasonally-adjusted 371,590 entries in June, marking a 3.1 per cent gain from May and 6 per cent uptick from same-month 2012. A 5.3 per cent gain increase in overseas visitors from May drove the monthly advance while the number of U.S. visitors rose 2 per cent.

While it remains to be seen if June’s upshift in tourist visits – which had been stuck at a range of 350,000 to 360,000 since mid-2011 – can be maintained, the outlook for the sector is relatively positive. Year-to-date international tourist visits were up 3.4 per cent through mid-year led by more visits from our American neighbours and by travelers from Asia.

Hotel occupancy rates are consistent with 2012 levels, but still well below pre-recession numbers. Growth will gain momentum as a strengthening U.S. economy and a lower Canadian dollar push more Americans to make the trek north of the border for both recreational and business purposes, generating spin-off effects locally. Tourism from Asia also offers considerable long-term potential but European visits will be constrained by poor economic conditions.

We forecast annual international visits to rise 3 per cent this year visits are unlikely to revisit pre-recession norms before 2015.

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