A B.C. Growth Revival and What it Means for the Southern Interior Southern Interior Local Government Association Penticton, B.C. April 30, 2014 Bryan Yu.
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A B.C. Growth Revival and What it Means for the Southern InteriorSouthern Interior Local Government AssociationPenticton, B.C.April 30, 2014
Bryan YuRegional EconomistCentral 1 Credit Union
Global economy still limping along, growth accelerates in recent months
30
35
40
45
50
55
60
Index
Source: Bloomberg, C1CU
JP Morgan Global Manufacturing PMI
Contraction
Expansion
U.S. growth a subdued 1.9% in 2013 but strong hand-off to 2014
-10.0
-8.0
-6.0
-4.0
-2.0
0.0
2.0
4.0
6.0
GDP FSDP
Per cent change at annual rate
Source: U.S. Bureau of Economic Analysis Latest : Q4-13
U.S. Economic Growth Housing market recovering Credit constraints ease Consumer Deleveraging
cycle Business spending
strengthens on underlying demand
Shale revolution Interest rates remain low Lower fiscal drag on
bipartisan budget deal
Labour market conditions improve, but weakness persists
02 04 06 08 10 12 140
2
4
6
8
10
12
60
61
62
63
64
65
66
67
68
Unemployment Rate (L)
Participation Rate ( R)
Source: U.S. BLS, BEA
02 04 06 08 10 12 14124000
126000
128000
130000
132000
134000
136000
138000
140000
-1000
-800
-600
-400
-200
0
200
400
600
Change (R)
Total (L)
Persons (mil.) Per Cent
U.S. Payroll Employment Labour Market Tightness
Persons (000s) Per Cent
Key consumer spending sectors reviving
2005 38991396304026940909140,000
145,000
150,000
155,000
160,000
165,000
170,000
175,000
180,000
185,000
190,000
Source: U.S. BEA. Note: Seasonally adjusted at annual rate. Latest: Nov-13
2005 2007 2009 2011 20138
10
12
14
16
18
20
22Units - millions $ (bil)
U.S. New Vehicle Sales U.S. Real Retail Sales
Housing market recovering
2000 2003 2006 2009 201240
50
60
70
80
90
100
110
120
NAR MedianC-S HPI
Source: Federal Reserve, Central 1 Credit Union, seasonally adjusted price.
4
5
6
7
8
9
10
11
12Per Cent Index (2005=100)
Rental Vacancy Rates U.S. Home Prices
$205k
Housing starts rebalancing after decade of overbuilding
1991 343043537036434375003856539630406950
500
1,000
1,500
2,000
2,500
Avg HH formationHousing Starts
Source: Federal Reserve, C1CU
Income and Net Worth Recovering
30,000,000.0
40,000,000.0
50,000,000.0
60,000,000.0
70,000,000.0
80,000,000.0
90,000,000.0
Source: U.S. BLS, BEA
-2
-1
0
1
2
3
4
5
6
7Per Cent $ T
Real PDI Growth Household Net Worth
Largest output gap in 60 years and housing starts lowest in more than 50 years
1949Q11960Q21971Q31982Q41994Q12005Q2-10
-8
-6
-4
-2
0
2
4
6
8
U.S. Output Gap (per cent of GDP)
Source: U.S. BEA, US Census Bureau, CBO. Latest: Q4-13
0
2
4
6
8
10
12
U.S. Starts Per Capita
Key External Economic ForecastsIndicator 2013 2014 2015 2016 2017
U.S. real GDP, % chg. 1.9 2.8 3.2 3.4 3.3
U.S. housing starts, % chg. 18.7 20.4 23.2 8.7 5.0
Japan GDP, % chg. 1.9 1.5 1.3 1.2 1.4
China GDP, % chg. 7.7 7.3 7.3 7.3 7.0
EU GDP, % -0.4 0.7 1.0 1.3 1.5
Canada real GDP, % chg. 2.0 2.3 2.6 3.1 3.0Source: U.S. BEA, Statistics Canada, Consensus Forecasts, C1CU.
U.S. cyclical recovery to gain momentum, Canadian economy lags
Canadian inflation near 1%, consistent with BoC expectations but still below target
2000 2002 2004 2006 2008 2010 2012 2014-2
-1
0
1
2
3
4
5
6
CPI Inflation
Core CPI In-flation
Year-over-vear per cent change
Source: S tat is t ics Canada, C1CU.
CPI Price Inflation
BoC begins raising rates in mid 2015
0
2
4
6
8
10
LT GoC Bond
3-mo. T-bill
Per cent
Source: Bank of Canada, C1 Economics. Note: Annual average. Latest actual: 2013.
Interest Rates, Actual and Forecast 2013-2018: Canada
Decline in Canadian Dollar to lift competitiveness and exports
2010-01-012011-02-142012-03-272013-05-080.85
0.90
0.95
1.00
1.05
1.10
CDN in USD
Source: S tat is t ics Canada, C1CU. Average weekly data Latest actua l : Feb 12 /14
Daily Exchange Rate
2011 2012 2013 2014 2015 2016 2017 20180.85
0.90
0.95
1.00
1.05
1.10
Exchange Rate OutlookCDN in USD
Transition year for B.C. economy in 2014 and gains in 2015 onwards
-6
-4
-2
0
2
4
6
8
10
NominalReal
Per cent change in GDP
Source: Statistics Canada, C1CU. Latest actual: 2011. Forecast: 2014 - 2017.
B.C. Economic Growth, Actual and Forecast
B.C. Economic and Housing ForecastsIndicator 2013 2014 2015 2016 2017
Real GDP, % chg. 1.4 2.4 2.9 3.9 5.1
Nominal GDP, % chg. 2.0 3.9 5.4 5.9 7.7
Employment, % chg. -0.2 1.3 1.7 2.1 2.6
Unemployment rate, % 6.6 6.4 5.8 5.7 4.7
Population, % chg. 0.9 0.9 1.0 1.1 1.3
Housing starts, (000s) 27.1 27.3 29.9 29.9 30.5Source: Statistics Canada, CMHC, C1CU.
Transition year for B.C. economy, economic momentum picks up in 2015 onwards
Labour market performance dismal year in 2013 but signaling modest improvement
2,220.00
2,240.00
2,260.00
2,280.00
2,300.00
2,320.00
2,340.00Persons - millions
Source: Statistics Canada, C1CU. Latest: Mar-14
B.C. Employment
AWE
Hours Worked
Part-time
Full-time
Total EMP
-3 -2 -1 0 1 2 3
2013 Growth Performance
Population growth sluggish as residents flow to Prairies
-20
-10
0
10
20
30
40
50
60
SOURCE Statistics Canada Central 1 Credit Union)
0.50
0.75
1.00
1.25
1.50
Per CentPersons (000s)
Population GrowthMigration Flows
Housing will not be a growth driver for economy
-15
-10
-5
0
5
10
15
20
SOURCE CMHC, Statistics Canada Central 1 Credit Union
0
5
10
15
20
25
30
35
40
45
Units (000s)Percentage change
Housing Starts Real Residential Investment
Exports cycling higher in 2014 with broad gains across sectors
1,500.0
1,800.0
2,100.0
2,400.0
2,700.0
3,000.0
3,300.0
Current $ 2002 $
Dollars - billions
Source: Statistics Canada, C1CU. Note: Seasonally adjusted. Latest: Feb-14
B.C. International Merchandise Exports
Growth (%) 2012-13 YTD 2014
Total Exports 6.4 10.5
Excluding Forestry 2.1 9.9
Forestry 15.3 11.7
Agriculture 7.0 12.1
Energy -1.7 17.6
Metal ores/ minerals 13.1 27.0
Export growth to outpace import gains until 2017
-8
-6
-4
-2
0
2
4
6
8
10
Ex-ports
Per Cent
Source: Statistics Canada, C1CU.
0
20
40
60
80
100
46.3
12.1
19.8
5.4
Proportion of International Goods Exports 2013
U.S.
Japan
China
S. Korea
Other
‘97-’07
64%.
14%
3%
3%
15%
B.C. forestry sector in recovery mode on higher demand and prices
2000 Apr-02Jul-04 Oct-06 2009 Apr-11Jul-13100
200
300
400
500
SOURCE: B.C. Stats, Random Lengths Central 1 Credit Union (updated Feb 2014)
2005 2007 2009 2011 20130
40
80
120
160
200
Lumber Production (Quantity)
Lumber Exports (Quantity)
Lumber Exports (Dollar-Volume)
Index (2010=100) $/1000 bd ft
Lumber Activity Lumber Price
Exchange rate sensitive sectors to experience boost
2002 2004 2006 2008 2010 20120
200,000
400,000
600,000
800,000
1,000,000
1,200,000
1,400,000
SOURCE Statistics Canada Central 1 Credit Union)
2002 2004 2006 2008 2010 201250
55
60
65
70
75
Per CentPersons (000s)
Hotel Occupancy RateCanada-US Auto Flows
Got Gas? High growth contingent on LNG
Investment and Exports to lead economic growth
Con Gov Res Inv Non-Res Inv Exports-10.0
-5.0
0.0
5.0
10.0
15.0
20.0
25.0
30.0
Per cent change
Source: Statistics Canada, C1CU. Latest actual: 2012. Forecast: 2014 - 2018.
Growth by Expenditure Account 2012-2018
Employment trending higher in Thompson-Okanagan but still trends weak
230.0
240.0
250.0
260.0
270.0
monthly, s.a. Annual average
Persons – thousands
Source: Statistics Canada, 2013 YTD
Thompson-Okanagan Employment
Region
THOK -2.9%
Kelowna CMA -2.4%
Kamloops CA -4.8%
Annual Growth 2013/12
Population flat since 2009
2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013450000
460000
470000
480000
490000
500000
510000
520000
530000
540000
-1
0
1
2
3% change (right) Population (left)
Persons – thousands Per cent
Source: Statistics Canada. Note: As of July 1, latest data preliminary.
Thompson-Okanagan Population
Positive gains in Kelowna CMA, net outflow in other areas
Source: BC Stats, C1CU. Latest: 2013
2012-2013 Growth
Central Okanagan
Columbia-Shuswap
North Okanagan
Okanagan-Similkameen
Thompson-Nicola
Thompson/Okanagan
-2.0 -1.5 -1.0 -0.5 0.0 0.5 1.0
Interprovincial migration by age group
-1500
-1000
-500
0
500
1000
1500
20000-14
15-24
25-44
45-64
65+
SOURCE Statistics Canada Central 1 Credit Union
Persons
Migration Flows
Intraprovincial migration by age group
-500
0
500
1000
1500
20000-14
15-24
25-44
45-64
65+
SOURCE Statistics Canada Central 1 Credit Union
Persons
Migration Flows
Home sales accelerate in 2013 but stay low
SOURCE: Landcor, Latest: 2013, resale properties * includes rural – updated Feb/14
0
2,000
4,000
6,000
8,000
10,000
12,000
14,000
16,000
18,000
UnitsAnnual Sales*
Central OK
Columbia-Shus
North OK
OK-Simil
Thomps-Nic
Thompson- Okanagan
0 2 4 6 8 10 12 14 16 18
Annual 2013 Growth (%)
Home prices level in 2013
0
50
100
150
200
250Cen. Okan
Col. Shus.
Nor. Okan.
Okan. Sim.
Thomp. Nic.
Index 2005=100
Source: Landcor, Central 1 Credit Union
$357.7
2013 ’09 -’13
0%
$274.9 -2%
$290.0 -2%
$270.0 -5%
$357.7 8%
Housing market oversupply persists, excesses unwind
2002 2004 2006 2008 2010 2012 20140
5
10
15
20
25
30
35
40
45
CDN in USD
Source: S tat is t ics Canada, C1CU. Average weekly data Latest actua l : Feb 12 /14
MLS® sales-to-active listings ratios
2002 2004 2006 2008 2010 2012 20140
100
200
300
400
500
600
700
800
Kelowna
Kamloops
Vernon
Unabsorbed new home inventory2002=100
Thompson-Okanagan building permit activity
0
200,000
400,000
600,000
800,000
1,000,000
1,200,000
1,400,000
$ (mil.)
Source: BC S tats . Latest : 2013
0
100,000
200,000
300,000
400,000
500,000
600,000
700,000
Non-Residential Permit VolumeResidential Permit Volume$ mil.
Municipal tax revenue growth slows since recession
2005 2006 2007 2008 2009 2010 2011 2012 20130
200,000,000
400,000,000
600,000,000
800,000,000
1,000,000,000
0
2
4
6
8% change (right) Revenue (left)
$ millions Per cent
Source: B.C. Ministry of Community, Sport and Cultural Development . Latest 2013
Thompson-Okanagan municipalities
THOK Q4 Major Project Capital Costs $ millionsConstruction Started Proposed
Total 16,449 6,402
COMMERCIAL 190 35
EDUCATIONAL SERVICES 120 46HEALTH CARE & SOCIAL ASSISTANCE 367 80
MINING 475 1,734
RESIDENTIAL 3,357 2,024
RESIDENTIAL MIXED USE 1,755 50
RESORT 5,788 170TRANSPORTATION & WAREHOUSING 1,190 155
UTILITIES 1,272 1,521
PUBLIC ADMINISTRATION 272Source:: Ministry of Jobs , Tourism and Skills training and Labour C1CU
Alberta swagger to boost regional activity
0.0
2.0
4.0
6.0
8.0
10.0
CalgaryEdmontonVancouver
Per Cent
Source: Statistics Canada. Note: Seasonally adjusted. Latest: 2013
Unemployment Rate
B.C.
Alberta
Saskatchewan
Canada
0.0 1.0 2.0 3.0 4.0 5.0 6.0
2012
2013
Weekly earnings growth (%)
Calgary
Edmonton
Major Metros
0.0 1.0 2.0 3.0 4.0 5.0 6.0
Housing Price Growth(%)
Okanagan housing market more favourable with lower Canadian dollar and rising U.S. prices
1999 2001 2003 2005 2007 2009 2011 2013-200,000
-100,000
0
100,000
200,000
300,000
$CDN
Source: Landcor, NAR, S tat is t ics Canada, Centra l 1 Cred i t Un ion. Latest : Dec-13
U.S. West – Thompson Okanagan Price Differential
Exchange Rate Adjusted Price differential tilted in favour of U.S. from 2005-2011
Seniors share of local population high in a Okanagan market
Salmon ArmNorth Saanich
TrailWest Vancouver
ComoxPenticton
PeachlandSummerland
Oak BaySechelt
White RockCrestonSidney
ParksvilleQualicum Beach
BCCanada
0 5 10 15 20 25 30 35 40 45 50
24.225.125.125.525.825.927.127.527.828.429.4
33.136.937.1
47.215.6
14.8
Source: S tat is t ics Canada, NHS, 2011
Thompson –Okanagan Forecast (% change)2012 2013 2014 2015 2016
Labour Employed 0.8 -2.9 1.7 1.5 2.3Unemployment
Rate 6.9 7.1 7.5 7.1 6.8Population 0.2 -0.1 0.2 0.2 0.3Resale Housing
Transactions5.3 9.1 7.0 7.1 9.0
Med. Price 0.0 -0.6 0.0 1.0 2.0
Source:: Statistics Canada, Landcor, C1CU
Housing market improves but levels remain low
0
2000
4000
6000
8000
10000
12000
14000
16000
18000
0
50,000
100,000
150,000
200,000
250,000
300,000
350,000Sales Median price
Units– thousands $ - thousands
Source: Landcor. Note: 2014-16 forecast
KEY POINTS• B.C. economy in cyclical growth recovery led by external factors
• Consumer demand weighs on poor labour market performance and weak housing market growth
• Southern interior under additional weight of mid-decade housing and tourism bust, excess housing stock
• Goods exports and tourism exports in the region to improve over forecast period
• Housing oversupply alleviation, Alberta Swagger, retirees, and less incentive to buy U.S. property to drive local economy
THANK YOU
Bryan YuEconomistCentral 1 Credit Union
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