BC Economic Snapshot Oct. 12, 2013

---

BC employment trends are weak at best 

VANCOUVER, BC, Oct 12, 2013/ Troy Media/ – It turned out to be chilly summer for B.C.’s labour market. In an all too familiar occurrence, B.C. was unable to hold on to employment gains recorded during the previous month.

Estimated employment in September fell back to a seasonally-adjusted 2.31 million persons, marking a 0.2 per cent or 5,400 person decline from August. A modest increase in full-time employment was offset by a pullback in part-time tenure.

Relative to the same month in 2012, employment was 0.7 per cent lower. Employment declines were concentrated among females over the age of 25, while overall youth employment rose significantly.

Service sectors took the brunt of the losses in September with the largest contractions in accommodations and foodservices and professional, scientific and technical services. In the goods-producing sector of the economy, gains in resource extraction, utilities, and construction-related employment drove a monthly gain of 1.6 per cent.

While monthly estimates can be volatile and September’s job loss was statistically insignificant, employment trends are weak at best. The labour market has failed to produce a net gain in employment over the first nine months of the year.

While the provincial unemployment rate has held steady at about 6.7 per cent, slightly below last year’s levels, the drop reflects a decline in the labour force participation rate as some unemployed have stopped looking for work.

Sluggish economic conditions have produced few highlights for the labour market. However, one persistently positive trend has been the rotation of the market towards full-time employment, which was up 0.5 per cent offsetting a 2.2 per cent drop in part-time tenure. This suggests that employers are adapting to the slow-growth environment by converting part-time workers to full-time tenure as needed, rather than focusing on new hires.
But even here, the benefit has been negligible, with total hours worked through September up less than one per cent from 2012. We forecast dismal employment gains of only 0.2 per cent this year and a modest improvement of 1.6 per cent next year as tempered economic growth continues to weigh on hiring.

Trade
Exports boosted B.C.’s economy in August following a two-month lull. Led by rebounds in energy and raw mining shipments, dollar-volume of domestic B.C. goods exported to international markets jumped to a seasonally-adjusted $2.896 billion in August, up 7.4 per cent from July with unadjusted volume up 15 per cent above same-month 2012.

Fluctuations in monthly export volumes are common, but the magnitude of growth and sector orientation in August suggest a lift from slightly stronger third quarter global economic conditions. The stronger performance along with a weak 2012 has led to acceleration in year-to-date gains to 6 per cent during first eight months of the year.

While top-line growth has been strong, and reflects both higher prices and unit shipments, gains have been sector-specific. Dollar-volume exports of forestry-products were more than 14 per cent higher on elevated lumber prices and higher shipments despite declines in the pulp and paper market, while capacity increases have generated gains in raw mining output, despite a soft pricing environment generating a dollar-volume gain of 27 per cent. In contrast, lower coal prices have weighed on energy volumes despite higher production and a rebound in natural gas prices.

August’s export gain was met with a deceleration in imports during the month, contributing to a smaller merchandise trade deficit and less of a drag on growth.

International trade likely recorded some positive momentum in the third quarter, but there is a risk that momentum will stall in the fourth quarter. The ongoing U.S. budget impasse, which has led to a partial shutdown of the federal government, will weigh on economic growth in the fourth quarter.

Meanwhile, a decision to raise the U.S. debt ceiling still looms, generating uncertainty across the broader economy. The U.S. is expected to reach its debt limit by October 17 and while default is not expected, delays could lead to further fiscal drag as the government prioritizes spending. Both factors could temporarily slow an export recovery in B.C. through softer demand and commodity prices.

Construction
Following August’s retreat, housing starts pulled higher in September as multi-family construction rebounded and builders began work on more single-detached homes outside Metro Vancouver.

Starts in B.C.’s urban markets rose to a seasonally-adjusted annualized pace of 29,600 units during the month, marking a 17 per cent increase from August and a return to the pace observed in June and July. Provincial gains were led by a near 18 per cent rebound in Metro Vancouver, with comparable growth of about16.5 per cent in the rest of the province.
Starts in most urban areas continue to trail 2012 but September’s uptick narrowed the year-to-date decline in provincial performance to about 5 per cent, down from 7 per cent in August.

The infrequency of and large number of units associated with multi-family projects generate significant volatility in monthly figures but September’s rebound suggest some stability near 30,000 units – up from the first half of the year but still below mid-decade highs. Metro Vancouver activity has reverted to near pre-recession trends, while building activity elsewhere in the province has turned positive, suggesting excess supply may be abating in overbuilt markets. Despite recent gains, construction is expected to ease.

The commencement of successfully pre-sold projects launched in the short post-recession frenzy of activity in late 2009 and into 2010, rather than recent demand, has buoyed Metro Vancouver activity.

Notwithstanding recent momentum, resale activity and pre-sale conditions have been weak over the past year reflecting underlying sluggishness in the economy, elevated inventories and tighter credit conditions, which should cool activity going forward. Residential building permits rose for the first time in four months in August, but the trend suggested a slowdown in construction activity in the fourth quarter.

Total volume reached a seasonally-adjusted $598.4 million, up a hefty 13 per cent from July on multi-family gains. Nonetheless, volume is in line with the weaker levels in late-2012, which should precede fewer starts.

Year-to-date volume was down 2.2 per cent through August, from the same period in 2012. Provincial housing starts, which include both urban and rural markets, are forecast to dip about 6 per cent this year to about 25,800 units, with only a modest increase to 26,900 units in 2014.

Housing
While residential intentions moved higher, a decline in private-sector activity weighed on non-residential building intentions in August. Total non-residential permits fell 13 per cent from July to $288.6 million, primarily reflecting a sharp drop in industrial permits. Non-residential intentions have dropped sharply this year and were down 25 per cent through the first eight months of the year.

While subdued economic conditions have curtailed some investment spending on the part of business and government this year, the decline largely reflects a base-year effect. In 2012 activity was boosted by a number of major project commencements, including the Rio Tinto upgrade in the North Coast region and hospital expansions in the Lower Mainland.

Through August, non-residential permit volume is down 80 per cent in the North Coast and 30 per cent in the Lower Mainland-Southwest, contributing to almost the entire dollar-volume decline. Partial offsets have been recorded on the Vancouver Island/Coast region and Northeast B.C. Annual non-residential permit volume is forecast to settle at 20 per cent from 2012, but remain above levels observed from 2009-2011.

| Central 1 Credit Union