Sunday, June 24, 2012

BC Economic Snapshot June 23, 2012

VANCOUVER, BC, Jun 23, 2012/ Troy Media/ – Consumer price inflation as measured by changes to the consumer price index (CPI) for B.C. slipped to the slowest pace since mid-2010.

Annual inflation fell to 1.3 per cent in May, down from the 1.6 per cent reading in April. The CPI held steady relative to April on a seasonally-adjusted basis and has generally decelerated since February, suggesting a stable price environment for consumers and their wallets.

However, the slow pace of CPI also reflects a tempered economic environment in the province that is not conducive to upward price pressure for general goods and services.

The slow pace of annual inflation reflected a tame price environment for shelter-related costs. The CPI sub-index for shelter was unchanged from May 2011. While electricity prices surged 12 per cent, natural gas was down nearly 7 per cent. Homeowners’ replacement cost also fell 3 per cent on a weaker housing market.

Weak inflationary pressure was also observed for health and personal care products (-0.7 per cent) and products related to recreation (0.3 per cent).

Energy prices are no longer exerting the same pressure on top-line inflation readings that was observed through much of 2011 when double-digit gains were the norm. Year-over-year growth in the energy prices in May fell to 2.7 per cent, down from a range of 3.8 per cent to 5.5 per cent observed in the first four months of the year.

Annual growth in gasoline prices fell to only 1.3 per cent. However, the tempered pace of year-over-year growth, which is expected to persist over the next few months, reflected high comparative price levels in 2011. The current economic environment suggests stable to declining gas prices could be in the cards in the coming months which should keep inflation at modest levels.


Retail spending in B.C. held steady in April, edging down 0.2 per cent from March to $5.15 billion. Following an upward revision of first quarter sales data, this marked the first monthly decline since December, but was modest relative to the 0.5 per cent drop recorded nationally.
Despite April’s decline, the underlying retail trend in B.C. remained positive, but gains were largely driven by rising sales in Metro Vancouver. In contrast, aggregate sales trend for the rest of the province has been slightly negative in 2012.

Year-to-date provincial sales remained higher than same period 2011 activity by 4.5 per cent in April, but the gap narrowed from March. Sales in Metro Vancouver were 5.7 per cent higher, while gains in the rest of the province were a more modest 3.5 per cent.

At the retail sector level, 2012 gains have been led by motor vehicle and parts dealers (10.5 per cent) and clothing retailers (18.1 per cent). Weaker growth was recorded in housing-related sectors including electronic and appliance retailers (-2.8 per cent), home furnishing/furniture (2.1 per cent) and building materials/equipment (2.3 per cent).

The tempered pace of housing-related retail sales is expected to persist given subdued housing demand in markets across the province and a tightening of mortgage insurance rules which will likely dampen demand further.


International tourist visits to B.C. edged up slightly in April following two monthly declines, as modest gains in the number of U.S. visitors offset a third consecutive decline in overseas visits.
Total entries rose 0.6 per cent from March to reach a seasonally-adjusted 354,230 persons in April, reflecting a 2.1 per cent gain in U.S. visits and a 2.6 per cent decline in overseas tourists.
Tourism levels remained consistent with the upper end of the post-recession range observed since early 2009, but were still well below entries observed in the mid-2000s.

While recent years weakness was largely driven by fewer U.S. visits, a reflection of the poor labour market conditions south of the border and elevated Canadian dollar, the decline looks to have troughed in late 2011.

U.S. visits have held steady in 2012. In contrast, the pace of overseas visits has declined significantly over the most recent three months of data by more than 6 per cent. Declines were led by Asian and European countries which could reflect a slowdown in Chinese economic growth, and greater uncertainty related to Europe. Travel from China has slowed from late 2011, while the visitor flow from South Korea has slumped since the beginning of 2012.


Provincial home sales in May slumped to the lowest level since September 2010, further extending the downtrend observed since January.

Total MLS sales fell 6.5 per cent from April to a seasonally-adjusted 5,750 units. In contrast to April activity, in which significant declines in Lower Mainland-Southwest (LMSW) sales were largely offset by stronger sales in a number of markets, May’s decline was broad-based. Combined sales in real estate board areas included in the LMSW were down 5.7 per cent, while sales on the island dipped about 4.5 per cent from April.

Meanwhile, the modest uptrend in central and southern interior market sales was interrupted by a 3.5 per cent pull-back in activity, while northern sales fell 10 per cent.

Market conditions in most B.C. markets remain tipped in favour of buyers in May, but have generally firmed in recent months in markets outside Metro Vancouver. Sales-to-active listing ratios (a proxy of supply and demand conditions) inched closer to balance in the B.C.’s interior and island markets as supply pressures eased.

However, weak recreational and retiree demand will continue to create challenges for recoveries in these markets, reflecting economic uncertainty, low fixed-income returns and elevated new home inventories.

Northern B.C. market conditions remained firmly in balanced territory as resource-related activities have supported both sales activity and prices in these regions. B.C.’s average MLS price declined in May to just below $500,000 on a seasonally-adjusted basis, marking the lowest level since July 2010. This was down 3 per cent from April, and 13 per cent below the same month in 2011.

Meanwhile, the federal government announced measures on Thursday that will tighten mortgage insurance rules and likely dampen demand in the market in a bid to quell rising home prices and slow debt accumulation in a low interest rate environment.

The key changes for high-ratio government-backed insured mortgages include the reduction of the maximum amortization period to 25 years from 30 years. Last year, the government reduced the maximum period from 35 years to 30 years.

Measures also limit the government-backed mortgage insurance to homes with a purchase price of less than $1 million, and lowers maximum refinancing amounts to 80 per cent from 85 per cent. The new rules will take effect on July 9, 2012.

The net impact of these measures will likely slow the housing market in the quarters to come, although a short burst in activity may occur prior to implementation as some buyers speed up their purchases to take advantage of the 30-year amortization product. Buyers that planned to use the 30-year product will face higher monthly payments under a 25-year amortization schedule.

While this will extinguish mortgage debt more quickly, the increased payments may force some buyers at the margin to scale back their purchase to a smaller/less expensive dwelling, or put off their purchasing decision over the short term.

As market conditions in many B.C. markets are currently tempered, including Metro Vancouver, the associated cut in demand could lead to short-term price declines, particularly in the market for apartment condominiums.


The underwhelming pace of population expansion observed since late 2010 persisted into the first quarter of this year as the provincial population expanded by only 8,532 persons from January 1 to April 1 to reach an estimated 4,606,451 persons.

This represented a gain of 0.2 per cent, which was slightly below the national pace of growth and well back of gains posted in neighbouring Alberta (0.8 per cent) and Saskatchewan (0.2 per cent).

Gains reflected international migration and a positive net natural increase which offset a net loss of residents to other provinces. Adjusted for seasonal factors, B.C.’s quarterly population growth rate slowed to an annualized rate of 0.9 per cent, down from 1 per cent in the previous quarter, but consistent with trends observed over the past year.

The weak pace of population growth is particularly evident when compared to the 1.5 per cent to 2 per cent growth rates observed from mid-2006 through 2009.

Migration is B.C.’s primary driver of population gains. Net international migration climbed modestly in the first quarter as the number of landed immigrants continued to rebound following a sharp drop in the third quarter. On a seasonally-adjusted basis, the number of landed immigrants exceeded 10,000 persons for the first time since the third quarter of 2010. In contrast, the net flow of non-permanent residents, which include students and temporary workers, was low, tempering net international growth.

International migratory flows reflect a number of factors, including Canadian immigration policy, the state of the global economy, and needs of the local economy.

While net international migration edged higher, B.C. lost residents to other provinces in the first quarter. The negative net flow has been ongoing since mid- 2011, but the trend has accelerated, reflecting both a decline in inflows to B.C. and a rising number of individuals leaving the province.

In the first quarter, the outflow of B.C. residents outpaced the inflow by 2,554 persons, as residents took flight to the stronger Prairie labour markets, particularly Alberta.
Net movement from B.C. to Alberta favoured the prairie province by an estimated 2,651 individuals. Interprovincial migration largely reflects local economic conditions. Stronger economies and lower unemployment rates in the prairies provinces are attracting individuals from across the country, and a net outflow was not limited to B.C.
Central 1 Credit Union


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