Geoff Cowling

Growth in the Canadian economy was essentially flat in July following 8 consecutive months of growth.  Only 11 of 20 industrial sub-sectors posted positive growth with output in key industries like mining, oil and gas and manufacturing declining.   Given today's release, third quarter growth in the Canadian economy is tracking at about 2.5 per cent - a deceleration from the nearly 4 per cent growth in the first half of 2017. 

The Bank of Canada has been emphatic that future rate adjustments will be highly data dependent. Slower growth in the third quarter likely means the Bank will hold off on increasing rates at its October meeting. However, beyond that meeting, as long as the Canadian economy is growing well above trend, which the Bank sees as a signal of rising future inflation, we expect further rate increases to come either by the end of this year or in early 2018.

Copyright British Columbia Real Estate Association. Reprinted with permission.

Canadian inflation, as measured by the Consumer Price Index (CPI), registered 1.4 per cent in the 12 months to August. That is a slight uptick from 1.2 per cent in July.   The Bank of Canada's three measures of trend inflation were also up slightly, averaging 1.5 per cent.   In BC, provincial consumer price inflation was 2.0 per cent in the 12 months to August. 

Canadian retail sales increased 0.4 per cent on a monthly basis in July and were 7.8 per cent higher year-over-year. Sales were higher in 6 of 11 retail sub-sectors with the main contribution coming from motor vehicle dealers and food and beverage stores. In BC, vigorous consumer spending continues to set the pace for the BC economy. Retail sales in the province climbed 0.7 per cent on a monthly basis and were up 12.3 per cent year-over-year.
 
Despite rapid economic growth in Canada, there is still very little sign of inflation. With inflation reading well below the Bank of Canada's 2 per cent target once again in August, the case for a further rate increase in October is lessened though not completely closed.

Copyright British Columbia Real Estate Association. Reprinted with permission.

Canadian manufacturing sales declined for a second consecutive month, falling 2.6 per cent in July. The dip in sales was largely due the motor vehicle and parts sector while sales were up in 12 of 21 manufacturing sub-sectors.
 
In BC, manufacturing sales decreased 1.6 per cent on a monthly basis but were up 7 per cent year-over-year. Year-to-date, BC manufacturing sales are up close to 8 per cent over 2016, led by strong contributions from a diverse range of industries from wood and paper products to food manufacturing to machinery and equipment. A strong trade and manufacturing sector is helping to propel employment and economic growth around the province, which further supports robust housing demand in BC.

Copyright British Columbia Real Estate Association. Reprinted with permission.

Vancouver, BC – September 14, 2017. The British Columbia Real Estate Association (BCREA) reports that a total of 9,162 residential unit sales were recorded by the Multiple Listing Service® (MLS®) in August, an increase of 2.4 per cent from the same period last year. Total sales dollar volume was $6.2 billion, up 22 per cent from August 2016. The average MLS® residential price in the province was $678,186, a 19.1 per cent increase from August 2016.

“BC home sales in August remained unchanged from July, on a seasonally adjusted basis," said Cameron Muir, BCREA Chief Economist. "Strong economic conditions are underpinning demand. However, rising home prices combined with upward pressure on mortgage interest rates is expected to temper demand over the balance of the year."

Year-to-date, BC residential sales dollar volume was down 15.9 per cent to $51.8 billion, when compared with the same period in 2016. Residential unit sales declined 15.0 per cent to 73,267 units, while the average MLS® residential price was down 1.1 per cent to $706,839.

Canadian housing starts increased 1 per cent in August to 223,232 units at a seasonally adjusted annual rate (SAAR).  The six-month trend in Canadian housing starts was also higher at 219,447 units SAAR.

New home construction in BC fell 21 per cent on a monthly basis to a still robust 35,773 units SAAR but were up 4 per cent on a year-over-year basis.  Single detached starts fell 7 per cent month-over-month and were 3 per cent lower year-over-year. Multiple unit starts declined 26 per cent on a monthly basis but were up 7 per cent year-over-year.

Looking at census metropolitan areas (CMA) in BC: 

• Total starts in the Vancouver CMA fell 13 per cent year-over-year in August. Both single and multiple unit starts declined, falling by 2 and 16 per cent respectively on a year-over-year basis.
• In the Victoria CMA market, housing starts followed up a surge in new units in July with a further 22 per cent year-over-year increase in August. Multiple unit starts were once again the main source of growth, rising 46 per cent year-over-year.

• New home construction in the Kelowna CMA more than doubled compared to August 2016 due to a number of multiple unit projects breaking ground. Many of those units are new rental units, which year to date have totaled 1,366 starts. That is the highest 8 month total for construction of rental units in Kelowna's history.
   
• Housing starts in the Abbotsford-Mission CMA continued a torrid pace of growth in August, rising 93 per cent year-over-year, boosted by strong growth in both single and multiple unit starts.

Copyright British Columbia Real Estate Association. Reprinted with permission.

Canadian employment increased by 22,000 jobs in August while the the national unemployment rate declined 0.1 points to 6.2 per cent, the lowest rate since October 2008. In the twelve months to August, employment in Canada is up 2.1 per cent, or 378,000 jobs.
 
In BC, employment declined for a second straight month, falling by 8,400 jobs.  In spite of those losses, the provincial unemployment rate moved 0.2 points lower to 5.1 per cent as the number of people looking for work also fell.  Over the past twelve months, the level of employment in BC is up 3.9 per cent.

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The total value of Canadian building permits fell 3.5 per cent on a monthly basis in July, the first decrease since March 2017.  The decrease was largely the result of lower construction intentions in Ontario, though several provinces saw declines. 

The total value of permits issued in BC increased 4.6 per cent on a monthly basis and were up 35.4 per cent year-over-year, exceeding $1.3 billion for a second consecutive month. Residential permits rose 7.8 per cent on a monthly basis and were 52.6 per cent higher year-over year. That growth was led by a record $771.8 million in permits for multi-family dwellings. Non-residential permits declined 6.1 per cent on a monthly basis and were 5.6 per cent lower year-over-year.

Construction intentions were higher in three of BC's four census metropolitan areas (CMA):

• Permits in the Abbotsford-Mission CMA  fell 17.4 per cent on a monthly basis to just over $30 million. Year-over-year, permit values were more than double the value of July 2016.

• In the Victoria CMA, total construction intentions totaled $138.9 million, an 8.2 per cent monthly increase and a 48 per cent increase in permit values from one year ago.

• In the Kelowna CMA, permits were 1.8 per cent higher a monthly basis and close to 5 per cent higher compared to July 2016 at $71 million.

• In the Vancouver CMA, a record value of multi-family dwelling permits pushed the total value of all permit activity to $858.6 million, an increase of 8.2 per cent on a monthly basis and a 48 per cent increase year-over-year.

Copyright British Columbia Real Estate Association. Reprinted with permission.

The Bank of Canada announced this morning that it is raising its target for the overnight rate by 25 basis points to 1 per cent. In the press release accompanying the decision, the Bank noted that recent economic data have been stronger than expected but growth is forecast to moderate in the second half of the year.  On inflation, the Bank cited some excess capacity and temporary price shocks as factors keeping inflation below its 2 per cent target. Importantly, the Bank mentioned it will be paying particular attention to the evolution of the economy's potential growth rate (meaning the economy's estimated long-run growth rate) as well as to labour market conditions and the economy's sensitivity to higher interest rates.

The Bank has now removed the stimulus it injected into the Canadian economy in 2015 to offset the impact of falling oil prices. With the economy expanding at a 3.5 per cent rate over the past year, that stimulus is clearly no longer required. The Bank seems to be more concerned about the potential for higher future inflation due to an over-heated economy than on the actual very low inflation observed in recent months. That leaves the door open for further rate increases should economic growth remain robust. 

Copyright British Columbia Real Estate Association. Reprinted with permission.