Canadian and U.S. Economic growth

The Canadian economy contracted 0.2 per cent in November. Falling energy prices resulted in declining output in the oil and gas sector, while manufacturing and mining production was also lower. Given available data, the Canadian economy likely expanded 1.9 per cent in the fourth quarter of 2014, and about 2.4 per cent for the year as a whole. While export growth will be helped this year by a significant fall in the loonie, we expect growth will decelerate slightly in 2015 to about 2.2 per cent as low oil prices drag investment and employment lower.  Uncertainty around the impact of the dramatic decline in oil has most market watchers expecting a further loosening of policy by the Bank of Canada, with a second rate cut coming in March.  Whether that comes to fruition likely depends on where the trend in oil is over the next month. If prices continue to fall, we expect the Bank will opt for more "insurance" by reducing its overnight rate to 0.5 per cent. However, if oil prices firm up and core inflation remains above 2 per cent, the Bank may opt to hold steady.

In the United States, real GDP grew at a healthy 2.6 per cent annual rate in the fourth quarter, following 5 per cent growth in the third quarter.  Growth was led higher by the strongest rate of consumer spending since 2006.  Note that today's report is the preliminary release and will be revised, perhaps substantially in coming months. Given that growth was actually tracking closer to 3.5 per cent for the quarter, we expect fourth quarter GDP will be revised higher with subsequent releases. 

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Canadian Retail Sales

Canadian retail sales rose 0.4 per cent in November, with 5 of 11 retail sub-sectors reporting gains.   In BC, retail sales were up 1.9 per cent on a monthly basis, and were 7 per cent higher compared to one year ago. Through 11 months of the year, retail sales in BC are up a robust 5.8 per cent,  the fastest annual rate of sales growth since 2007. 

With the release of November retail sales data our tracking estimate puts Canadian real GDP growth for the fourth quarter of 2014 at 2.1 per cent, which would fall short of the Bank of Canada's most recent forecast of 2.5 per cent for the quarter. Growth in the BC economy is currently tracking at 2.4 per cent for 2014.

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Bank of Canada Interest Rate Decision

In a bombshell announcement this morning, the Bank of Canada announced that it is lowering its target overnight rate to 0.75 per cent. The surprise loosening of monetary policy is in response to the recent dramatic decline in oil prices and the consequent negative impact on Canadian growth and inflation. The Bank expects the Canadian economy to grow 2.1 per cent in 2015 and 2.4 per cent in 2016. Given the initial drag on growth from lower oil prices, it does not expect the Canadian output gap (the difference between actual GDP and GDP at full capacity) to close until the end of 2016. 

While we expected the sharp decline in oil prices and the uncertainty regarding when they might stabilize would keep the Bank of Canada from raising interest rates in 2015, the Bank has instead opted for a more aggressive approach.  How long the Bank intends to keep its overnight rate at 0.75 per cent is unclear, but given strong underlying growth pre-oil shock, if oil prices rise as expected in the second half of the year we could see this move reversed by the end of 2015.   For now, the BC housing market should continue to benefit from low and now likely lower mortgage rates

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Canadian Manufacturing Sales

 Canadian manufacturing sales declined for the third time in four months in November, falling 1.4 per cent to $51.5 billion. Lower sales reflected weakness in motor vehicle, chemicals and food manufacturing.

In BC, where manufacturing employs over 160,000 people,  manufacturing sales fell 1.2 cent on a monthly basis, but were 2.6 per cent higher year-over-year.  Through the first 11 months of the year, manufacturing sales are 6.5 per cent higher than 2013. 

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Consumer Demand in 2014 Strongest in Five Years

Vancouver, BC – January 13, 2015. The British Columbia Real Estate Association (BCREA) reports that a total of 84,049 residential unit sales were recorded by the Multiple Listing Service® (MLS®) in 2014, up 15.2 per cent from 2013. After lagging for several years, BC home sales eclipsed the ten-year average of 82,000 units and the 15-year average of 83,600 units. Total sales dollar volume was $47.8 billion, an increase of 21.9 per cent from 2013. The average MLS® residential price in the province rose to $568,405, up 5.8 per cent from the previous year.

“BC experienced a significant increase in housing demand last year,” said Cameron Muir, BCREA Chief Economist. “Not since the post-recession rebound of 2009 has the market posted such a turn around."

Prior to 2009, one would need to look back to the 2001-2002 period to find a stronger year-over-year percentage gain in BC home sales.

Home buyers were out in force in nearly every region of the province, with unit sales climbing 8 to 25 per cent in all BC real estate boards, except Kamloops where the number of transactions dipped nearly 5 per cent. “Stronger consumer demand not only pulled down the inventory of homes for sale, but also firmed market conditions throughout the province,” added Muir.

In December, BC residential sales dollar volume was up 18.2 per cent to $2.97 billion, compared to the same month last year. Residential unit sales were up 14.7 per cent to 4,426 units, while the average MLS® residential price was up 3 per cent at $585,718.

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Canadian and US Employment

Employment in Canada was relatively unchanged to end the year, falling by 4,300 jobs in December.  The national unemployment rate remained at 6.6 per cent. Total hours worked, which is closely associated with economic growth, increased by a relatively strong 0.7 per cent.

In BC, employment grew by 2,200 jobs in December. However, the headline number masks an enormous shift in employment from part-time to full-time work. Full-time employment increased a remarkable 22,300 while part-time work fell by 20,200. That full-time employment figure, if it holds, would be the largest monthly gain in full-time jobs since September of 2011. The provincial unemployment rate fell 0.4 points to 5.4 per cent. For all of 2014, BC employment growth was just 0.9 per cent, but did accelerate to average growth of 1.7 per cent in the final three months of the year.

In the United States, the labour market continued to gain strength in December, adding 252,000 new jobs.  Moreover, the US unemployment rate  declined 0.2 points to 5.6 per cent. Over the past three months, the US economy has created an average of 289,000 jobs per month.

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Nelson Single Family Home Sales Stats

Source:  KREB Nelson SFH sales statistics