Thursday, March 24, 2016

Canadian Retail Sales

Canadian retail sales bounced back from a disappointing December, rising 2.1 per cent in January. Sales growth was broad-based with 7 of 11 subsectors reporting higher sales.   Given strong economic data to start 2016, first quarter real GDP growth in Canada is tracking at about 1.9 per cent, a significant improvement from just 0.8 per cent growth in the fourth quarter of 2015.

In BC, retail sales grew 2.8 per cent on a monthly basis and were up a blistering 9 per cent compared to January 2015. The BC economy is off to a very strong start in 2016, with growth in the early months tracking at more than 3 per cent on an annualized basis.

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Canadian Manufacturing Sales

A very solid start to the year for the Canadian manufacturing sector as sales rose 2.3 per cent to $53.1 billion, the highest level on record. Sales were led higher by gains in the motor vehicle, food and motor vehicle parts sectors, which accounted for 85 per cent of growth in January.  In inflation adjusted terms, sales in January were at their highest level since July 2008, finally surpassing levels last seen before the 2008/09 recession.

In BC, where the manufacturing sector employs approximately 170,000 people, sales rose 0.7 per cent on a monthly basis and just 0.8 per cent year-over-year.  The current slowdown in China is clearly having an impact on BC's trade and manufacturing sector, though stronger growth in the US and a low dollar should provide a boost to growth in coming months.

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BC Home Sales Sizzle at Record Pace

The British Columbia Real Estate Association (BCREA) reports that a total of 9,637 residential unit sales were recorded by the Multiple Listing Service® (MLS®) last month, up 44.7 per cent from February of last year. This smashed the previous record of 8,157 unit sales for the month of February recorded in 1992. Total sales dollar volume was $7.51 billion in February, up 76.4 per cent compared to the previous year. The average MLS® residential price in the province was up 21.9 per cent year-over-year, to $779,419.

“Housing demand is now at a break-neck pace,” said Cameron Muir, BCREA Chief Economist. “Home sales last month were not only a record for the month of February, but on a seasonally adjusted basis, demand has never been stronger in the province.”

“Downward pressure on active listings has created significant upward pressure on home prices in some regions, particularly in Vancouver and the Fraser Valley,” added Muir. “While home builders have responded with a record pace of housing starts for BC last month, the supply isn’t expected alleviate the imbalance in these markets in the near term."

The year-to-date, BC residential sales dollar volume increased 73.6 per cent to $11.9 billion, when compared with the same period in 2015. Residential unit sales climbed by 40.1 per cent to 15,468 units, while the average MLS® residential price was up 23.9 per cent to $769,424.

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Canadian Employment

Employment in Canada was unchanged in February as gains in part-time work offset a decline in full-time jobs. The national unemployment rate rose 0.1 points to 7.3 per cent, the highest rate of unemployment in three years.

BC was the only province that saw job growth in February. Employment was up by 14,000 jobs and was 3 per cent higher than one year ago, the highest rate of job growth in Canada. The provincial unemployment rate remained unchanged at 6.6 per cent as in-migration from other provinces continues to add to the pool of individuals actively looking for work.

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Canadian Housing Starts

Canadian housing starts jumped close to 30 per cent in February following a dip in activity to start the year. Total housing starts were 212,594 units at a seasonally adjusted annual rate (SAAR).   The six-month trend in Canadian housing starts of 198,880 was up slightly.

Housing starts in BC were the highest on record in February, reaching an astounding 50,780 units SAAR. The record-setting pace of new home construction was the result of record setting pace of starts of apartments and other multi-family units, which were up 183 per cent on a year-over-year basis.

Looking at census metropolitan areas (CMA) in BC, total starts in the Vancouver CMA were up 199 per cent year-over-year in February due to a record setting month for multiple unit starts. In the Victoria CMA, housing starts were up 46 per cent year-over-year with strong gains in both single and multiple starts. Home construction in the Kelowna CMA also posted strong gains as starts of multiple units hit an 8 year high and total starts increased 253 per cent year-over-year. Housing starts in the Abbotsford-Mission CMA were up 49 per cent in February on broad strength in both single and multiple units starts.

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Canadian Economic Growth

The Canadian economy slowed substantially in the fourth quarter as growth was pulled down by renewed pressure on energy prices. Canadian real GDP, that is economic output adjusted for inflation, was just 0.8 per cent higher in the fourth quarter following a 2.4 per cent expansion in the third quarter. Economic growth was led by a 1 per cent increase in household consumption, a 1.5 per cent increase in government expenditures and nearly 2 per cent growth in residential construction. The lower Canadian dollar also helped improve Canada's trade balance, as imports declined close to 9 per cent. Real GDP growth for all of 2015 registered just 1.2 per cent.

The Canadian economy was sluggish throughout 2015 and the outlook for growth in 2016 looks to be fairly similar. Absent a major turnaround in oil prices, the national economy will continue to be dragged down by slow growth or even recessions in energy producing provinces. We expect that economic growth in 2016 will be about 1 per cent before picking up in 2017. Slow growth likely means tempered inflation and little ability for households to support higher interest rates. Therefore, we expect the Bank of Canada to remain on the sidelines throughout the year, placing the emphasis on fiscal policy to boost growth.

Copyright BCREA – reprinted with permission