Saturday, August 10, 2013

BC Economic Snapshot August 10, 2013

VANCOUVER, BC, Aug 10, 2013/ Troy Media/ – Estimated employment in B.C. fell to a seasonally-adjusted 2.31 million persons in July, down 11,700 positions or 0.5 per cent from June, to the lowest level since March.

Unemployment rose 0.4 percentage points to 6.7 per cent, despite a slight decline in the participation rate. Losses were concentrated among younger workers (-2.4 per cent) and females over the age of 25 (-0.7 per cent). Metro Vancouver fared slightly better than the rest of the province with employment edging down only 0.2 per cent.

Among B.C. industries, employment declines were most significant in retail and wholesale trade, which contracted by 15,300 persons (3.9 per cent), manufacturing (3.9 per cent) and public administration (4.9 per cent). In contrast, construction employment expanded by 9,500 persons (5 per cent), providing a significant offset.

July’s headline numbers underscore the ongoing weakness in B.C.’s labour market. Over the first seven months of the year, job growth has essentially been nil relative to the same period in 2012.

While the unemployment rate has been low, and below last year levels, this reflects lower labour force participation rather than a tighter market. Some prospective workers may have stepped back from the labour market given weak job prospects, rather than join the ranks of officially unemployed.

If there is a silver lining, it is the ongoing shift towards full-time employment from the part-time sector. Full-time employment returned to historical highs in July and through the first seven months of the year was up 0.6 per cent, offsetting a 2.2 per cent decline in part-time work. This suggests employers are adapting to the slow-growth environment by converting part-time workers to full-time as needed, rather than focusing on new hires.

The net impact is a gain in total hours worked in the economy of about 1 per cent. While better than zero growth, expansion in hours worked is still well below normal and indicative of a weak economy. We forecast employment gains of only 0.5 per cent this year and a gain of 1.4 per cent next year as tempered economic growth continues to weigh on hiring.

July was busy for new home starts as builders kept their foot on the gas for a second straight month. Total urban-B.C. housing starts rose to a seasonally-adjusted annualized rate of 30,800 units in July, up 5 per cent from June and up 29 per cent from the same month in 2012.

A recent rebound in multi-family construction, particularly in Metro Vancouver but also in other areas of the province, propelled monthly starts to the highest levels since 2008. Metro Vancouver, which recorded 23,700 annualized starts in July, is observing activity reminiscent of the pre-recession period.

The recent upshift has narrowed the year-to-date decline in urban housing starts to 6 per cent relative to 2012, compared to a 12 per cent gap in June. Recent months’ activity will likely lift economic growth in the second half as related construction activity ramps up. However, starts are expected to revert lower by the fourth quarter.

Housing starts are notoriously volatile; reflecting the high number of units associated with individual multi-family project starts and prior to June starts fluctuated near a pace of about 22,000 units.

General housing demand remains sluggish albeit stable and new and existing home inventories are elevated. Builders are expected to lessen the risk of over supply by delaying starts and lengthening construction times.

Provincial housing starts, which include both urban and rural markets, are forecast to dip about 7 per cent this year to about 25,500 units. This is a slight upward revision to previous forecasts, in light of some positive momentum in resale markets and second-quarter starts, but still the lowest since 2009.

Seemingly unfazed by the soft economy and labour market conditions as well as a persistence of elevated housing inventory, builders seemed intent on getting more projects off the ground in the second quarter, following a quiet six months of activity, fuelling a ramp up in housing starts.
B.C. municipalities issued building permits valued at a seasonally-adjusted $901.3 million in June, marking a 10 per cent rebound from May, led by a jump in non-residential activity. The gain bucked a decline observed at the national level.

Seasonally-adjusted residential permit volume was unchanged from May at $588 million, while non-residential activity rose 35 per cent on commercial building activity. Higher permit volumes in recent months point to some positive momentum in construction investment in the latter half of the year, but activity still lags relative to year-ago levels.

Actual (unadjusted) permit volume was down 5 per cent in June on a year-over-year basis. While monthly comparisons are notoriously volatile, permits through the first half of 2013 were down 11 per cent, reflecting a drop in non-residential activity of 31 per cent. Fewer major projects have started in the North Coast and Lower Mainland regions. Annual non-residential permit volume is forecast to settle at 20 per cent below 2012 levels.

While non-residential intentions have withered, residential activity has held up. First-half dollar volume was 1.6 per cent higher than a year ago, and was the strongest since 2008 on a ramp up in multi-family activity. However, we expect this trend to shift lower.

Recent gains reflect a coincidence of project starts that were years in the making, planned when the market was stronger. Slow sales over the past year, tempered demand, and constraints to federal mortgage insurance points to fewer potential projects in the pipeline, which will curtail future permits and housing starts.

B.C.’s export sector was unable to match May’s stronger performance in June as a pull-back in forestry-related and processed mining product shipments dampened overall sales. Total goods shipments to international markets fell to a seasonally-adjusted $2.68 billion in June, down 6 per cent from May.

Despite the drop off, June volume remained 2 per cent higher than the same month last year – a fourth consecutive year-over-year increase. Fluctuations in monthly export volumes are the norm, but June’s lower performance suggests the already modest export recovery lost steam in the second quarter on tempered growth in both the U.S. and China.

Nonetheless, year-to-date current-dollar export volume still outpaced year-ago levels by 4.4 per cent in June, albeit down from the 4.9 per cent gain in May. Exports to the U.S. and China were each up 11 per cent.

Dollar-volume export gains have largely been price led, with product shipments up about 1.5 per cent. Higher prices have lifted forestry volumes up $747 million or nearly 15 per cent from the first half of 2012. In addition, raw mining output and agriculture-related shipments activity have contributed.

June’s export decline outpaced a drop in imports, contributing to a wider merchandise trade deficit during the month. However, export and import growth has been consistent this year, leading to trade deficit consistent with the first half of 2012.

Despite a recent deceleration, we remain optimistic for a second half export rebound led by stronger U.S. and global economic conditions. Annual current-dollar exports are forecast to rise by about 5 per cent this year. Nonetheless, we expect international trade to contribute only modestly to GDP growth this year as imports also rise.
| Central 1 Credit Union


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