BC Economic Snapshot Nov. 16, 2013

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B.C.’s international merchandise trade deficit continues to grow

VANCOUVER, BC, Nov 16, 2013/ Troy Media/ – B.C.’s export performance remained steady in September as exporters held onto most of the gains recorded in August. Total export volume slipped to a seasonally-adjusted $2.84 billion in September, marking a decline of 1.8 per cent from the previous month.

Despite the deceleration, activity was still six per cent above the same month in 2012. Significant fluctuations in monthly export volumes are common, but the export trend strengthened in the most recent quarter, following a second quarter lull.

Quarterly growth was led by rebounds in energy, processed minerals and metals, forestry and agriculture products sectors. The sector orientation of growth point likely reflects stronger global, and more importantly, U.S. economic conditions during the quarter.

Demand growth along with a weak 2012 has contributed to acceleration in year-to-date gains to more than 5 per cent during first three quarters of the year. However, volume has been buoyed by higher resource prices relative to last year, particularly in the forestry and natural gas markets. Real price-adjusted shipment growth was closer to about 1.7 per cent.

While momentum in exports has generated some good news for the economy, the lift has been dampened by imports which accelerated to a new high in September. Despite export growth exceeding import gains in percentage terms, B.C.’s international merchandise trade deficit has continued to grow – limiting growth in the provincial GDP.

Housing
In a sign that housing momentum in B.C. is finally easing, MLS home sales turned lower for the first time since February. Seasonally-adjusted sales fell nearly 7.5 per cent from September to 6,480 units in October as activity pulled back in most real estate board areas of the province. October sales declines were led by the Lower Mainland, Vancouver Island markets, and the Okanagan-Mainline.

Year-over-year sales growth in October remained high at nearly 26.5 per cent, but this compared to a period of falling sales in 2012 that generated among the weakest October sales performances in nearly two decades. Recent growth has pulled sales back to a level in line with the 10-year average. Despite October’s sales decline, year-to-date sales growth increased to near five per cent, in part reflecting exceptionally weak activity in late-2012.

Market conditions remained relatively steady during the month, as the pace of seasonally-adjusted new listings eased and month-end inventory declined. Sales-to-active listings ratios point to balanced market conditions in the Lower Mainland, Victoria and Northern B.C. areas.
However, most areas trend in buyers’ market territory, particularly in the central and southern interior and Vancouver Island regions outside Victoria – but conditions are stabilizing.


A tightening of housing conditions this year has maintained home prices. The average MLS price slipped 1.5 per cent from September to about $544,400, but has consistently outpaced same-period 2012 by about six per cent in recent months. While the provincial average price has been skewed higher this year by stronger sales momentum in the higher-priced Lower Mainland, a scan of regional performance and constant-quality indicators, where available, suggests a recent firming of price levels in a number of areas but generally unchanged pricing relative to same-period 2012.

October’s market deceleration was not surprising, and was consistent with our view that recent sales momentum was underpinned by temporary factors given ongoing sluggishness in the labour market and economy. These include an advance of future sales as an uptick in borrowing costs led some prospective buyers with low rate commitments to take the plunge.
Meanwhile, the initial shocks of last year’s mortgage insurance rule tightening subsided. Sales momentum is expected to cool as these sales catalysts fade. A subdued economy, low employment growth, higher interest rates and federal government policies to constrain household leverage will curtail further demand growth.

Despite some moderation going forward, MLS sales growth will likely reach six per cent this year to about 71,600 units on recent gains and a poor performance during the back-end of 2012. A gain of 5 per cent is pegged for 2014 on a strengthening economy, but sales are forecast to remain below the post-2000 average of about 80,000 units.

GDP
2012 is well back in the rear-view mirror but the long-awaited release of the provincial and territorial economic accounts shines new light on B.C.’s economic performance during the year. Topline real gross domestic product (real GDP) growth and performance relative to other regions remained consistent with industry-based GDP estimates reported earlier in the year.
B.C.’s economic growth decelerated to a subdued pace of about 1.5 per cent during the year compared to 2.7 per cent in 2011. National growth reached 1.7 per cent in 2012, led by strength in the Prairies.

Cross-border trade was the major economic anchor for B.C.’s economy in 2012 as the persistence of sluggish economic conditions in the broader international economy constrained export growth. In comparison, domestic demand, which excludes net exports and inventory changes, grew at a more favourable rate of 2.9 per cent, up from 2.3 per cent in 2011. Despite a deceleration in household consumption and government spending, strength in investment spending provided a counterweight.

Following a strong expansion in 2011, real exports of goods and services posted zero growth in 2012 as the global economy decelerated on a tempering of economic stimulus. International exports contracted for the first time since 2009 by almost one per cent. Exports to other provinces offset this decline, but even here, interprovincial growth was the weakest since 2009 as expansion in service-related exports, which include activities like professional services, tourism, etc., slowed to a crawl on a sluggish national performance.

In contrast, imports continued to climb, albeit at a decelerated pace. Flat exports and import growth of about 2.8 per cent led to substantial bump in B.C.’s real trade deficit for the year, from $13.7 billion in 2011 to $16.5 billion in 2012. Domestic demand was surprisingly more robust during the year, driven primarily by higher levels of investment in the economy. In particular, demand for housing drove a nine per cent investment gain in residential structures.

Meanwhile, commencement of major projects and re-investment by companies in machinery and equipment provided a significant boost to non-resident investment of nearly 10 per cent.
While investment accelerated, growth in consumer spending decelerated. Facing tempered labour markets, high household debts and general economic uncertainty, household consumption growth slowed to 2.1 per cent 2012 from 2.5 per cent in 2011, marking a second consecutive deceleration.

Meanwhile, governments scaled back spending growth in light of fiscal belt-tightening and cut capital spending from year-ago levels. Gross provincial income grew at 2.3 per cent in 2012, down from 4.4 per cent in 2011. Wage and salary growth was consistent with 2011 at 4.1 per cent, while net operating surplus of corporations fell 17.9 per cent following two years of significant growth.

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