After three months of growth, Canadian real GDP was essentially flat in February as disruptions to education services and the transportation and warehousing sector stalled the economy.  Excluding those sectors, economic growth was 0.2 per cent with 13 of 20 sub-sectors recording increased output. Activity in the real estate sector rose 5.9 per cent in February, the largest increase since December 2017.


Statistics Canada has also made a flash estimate for March 2020 real GDP which it estimates declined a staggering 9 per cent on a monthly basis due to the COVID-19  pandemic and associated mitigation measures. If that estimate is accurate, first quarter real GDP will contract by close to 10 per cent on an annualized basis. As dramatic as the first quarter decline appears, it will almost certainly be quickly overshadowed by what most expect to be a 30 per cent or more annualized decline in the second quarter.  Note that those are annualized estimates. The actual peak-to-trough decline in Canadian real GDP is estimated at 10-15 per cent before things begin to normalize and growth rebounds in the third and fourth quarter of this year.

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Canadian inflation, as measured by the Consumer Price Index (CPI) rose by 0.9 per cent in March year-over-year, down from a 2.2 per cent increase in February. This marked the largest decline in the CPI since the measure began in 1992. Energy prices were the main drag on inflation, excluding this category, national CPI rose by 1.7 per cent year-over-year. The downward pressure on gas prices began before the spread of COVID-19, but were exacerbated as global demand dropped (e.g., limitation on international travel), while supply continued to increase. The Bank of Canada's three measures of trend inflation fell 0.2 percentage points, averaging 1.8 per cent in March. Prices rose in six of the eight major components, led by shelter (+1.9%). In contrast, prices fell for transportation (-1.2%) and recreation, education and reading (-0.5%). 

In B.C., CPI grew to 1.2 per cent year-over-year, following a 2.4 per cent increase in the previous month. The drag on price growth was primarily due to a fall in gas prices (-14.5%) and to a lesser extent, transportation (-3.2%). Meanwhile, price growth was reported in clothing (2.2%) and household furnishings (1.1%). 

Statistics Canada notes that the March CPI was largely unaffected by COVID-19, as the majority of prices were collected prior to the implementation of domestic physical distancing measures. As such, we can expect to see steep drops in prices in next month's CPI report.
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Seasonally-adjusted Canadian retail sales were up by 0.3% in February at $52 billion. The rise in February was driven by auto dealers and general merchandise stores. Sales were up in 6 of 11 sub-sectors, representing 63% of retail sales. Some retailers reported that both the rail blockades and COVID-19 negatively impacted their sales in February. In contrast, sales were positive at stores selling sporting goods, hobby, book and music, building material and garden equipment, and health and personal care. 

In BC, seasonally-adjusted retail sales were up by 1.2% at $7.4 billion in February. Looking at the non-seasonally adjusted change shows a different picture. Retail sales in February were down by 0.1% from the previous month in half of the sub-sectors, notably at general merchandise stores (-11%), clothing (-5%) and electronics/appliances (-5%). Meanwhile, Vancouver reported a monthly increase of 1.2% in retail sales. Compared to the same time last year, BC retail sales were up by 6.4% in February.

Given that the majority of physical distancing measures and store closures were not implemented until mid-March, the impact of COVID-19 on retail sales will be more apparent in next month's data release. We can expect a steep drop in dining and entertainment, accommodations and at gas stations, while increases will likely be reported at grocery stores and in e-commerce. Compared to the same time last year, e-commerce reported an increase of 18% in February, accounting for about 3.6% of total retail sales in Canada (excludes Canadians purchasing from foreign e-commerce retailers). In March, many Canadian retailers reported opening or expanded their e-commerce platforms.

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The Bank of Canada maintained its overnight policy rate at 0.25 per cent this morning, a level it considers to be its effective lower bound. The Bank also announced additional new measures to support the Canadian financial system. In its statement, the bank noted that efforts necessary to contain the spread of COVID-19 have caused a sudden and deep contraction in economic activity and employment worldwide.  The bank judges the current outlook to be too uncertain to provide a complete forecast, though it expects real GDP growth to decline 1-3 per cent in the first quarter of 2020 and a further 15-30 per cent (annualized) drop in the second quarter.

To offset any potential dysfunction in financial markets and to keep credit channels operating smoothly, the Bank will continue its purchase of Government of Canada as well as provincial government, and even investment grade corporate bonds in the secondary market.  These measures, along with those implemented by the Federal Government, will help to ease pressure on Canadian borrowers at all levels, from large corporations, to small businesses to households.
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Vancouver, BC – April 15, 2020. The British Columbia Real Estate Association (BCREA) reports that a total of 6,717 residential unit sales were recorded by the Multiple Listing Service® (MLS®) in March 2020, an increase of 17.2 per cent from March 2019. The average MLS® residential price in BC was $789,548, a 15.1 per cent increase from $685,892 recorded the previous year. Total sales dollar volume in March was $5.3 billion, a 35 per cent increase over 2019.

“Provincial housing markets started the month very strong before the COVID-19 pandemic put a halt to activity,” said BCREA Chief Economist Brendon Ogmundson. “Activity will slow considerably in April as households and the real estate sector implement measures necessary to mitigate the spread of this virus.”

“While we don’t know when this unprecedented period will end, markets will be boosted by pent-up demand and historically low interest rates when it does,” added Ogmundson. “The ultimate strength of the recovery will depend on how long the economy remains effectively shut down, as well as the efficacy of federal and provincial measures to bridge households through the financial difficulties brought on by the pandemic.”

Year-to-date, BC residential sales dollar volume was up 37.1 per cent to $12.9 billion, compared with the same period in 2019. Residential unit sales increased 21.7 per cent to 16,866 units, while the average MLS® residential price was up 12.6 per cent to $763,031.  

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US Real GDP Growth (Q4'2016) - January 27, 2017


US real GDP growth registered a weaker than expected 1.9 per cent growth the final quarter of 2016, and 1.6 per cent growth for the year as a whole.  Growth was pulled lower by a widening US trade deficit, while consumer demand and business investment were robust. Most economists expect US economic growth to accelerate to about 2.2 per cent in 2017.

The pace of economic growth in the United States could be a key determinant in the BC housing market this year. While faster US growth is generally positive for the BC economy, a stronger pace of growth along with a possibly significant shift in the fiscal outlook due to the large tax cuts and ramped-up spending plans of the Trump administration, is already translating to rising long-term interest rates as markets anticipate higher inflation and consequent monetary tightening by the US Federal Reserve. In turn, that uptrend in rates is putting pressure on Canadian mortgage rates, with many lenders increasing their best offered rates. 

 

Copyright British Columbia Real Estate Association. Reprinted with permission.



Canadian Retail Sales - January 20, 2017


Canadian retail sales inched 0.2 per cent higher in November.  Sales were higher in just 5 of 11 sub-sectors, with motor vehicle and parts dealers and building materials supplies leading the way.  E-commerce sales accounted for 3 per cent of total retail sales, the highest proportion to date in 2016.  Given today's data,  we are currently tracking fourth quarter Canadian real GDP growth at 1.5 per cent. 

In BC, retail sales were down 0.7 per cent on a monthly basis, but were 5.5 per cent higher year-over-year.  Year-to-date, retail sales in the province are up 6.5 per cent. 


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Canadian Manufacturing Sales - January 19, 2017


Canadian manufacturing sales rose 1.5 per cent in November after posting a moderate decline the previous month.  Sales were higher in 14 of 21 manufacturing sub-sectors. After adjusting for inflation, the total volume of sales was 1.2 per cent higher. 

In BC, where the manufacturing sector is a significant employer and a key driver of economic growth, sales were up 2.4 per cent on a monthly basis and 9.2 per cent year-over-year. The manufacturing sector has been on a significant upswing after a slow first half with sales posting nearly 8 per cent growth over the second half of the year. That growth is adding to already strong momentum in other sectors and supporting housing demand across BC communities where manufacturing, particularly of forestry products, is an important driver of local economic activity. 


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Bank of Canada Interest Rate Announcement - January 18, 2017


The Bank of Canada announced this morning that it is holding the target for its overnight rate at 0.5 per cent. In the press release accompanying the decision, the Bank noted that uncertainty in the global outlook, particularly with regard to policies in the United States, is undiminished. The Canadian economy is forecast to grow 2.1 per cent in both 2017 and 2018, implying the Canadian economy will return to full capacity in mid-2018.  On inflation, the Bank noted that it continued to be lower than expected but should return to it 2 per cent target in coming months.

Political uncertainty in the United States will likely govern the direction of both policy rates and long-term bond yields over the next year. The interest rate on 5-year government of Canada bonds has risen to its highest point in a year, which is adding upward pressure to mortgage rates offered by Canadian lenders.  While the Canadian economy is forecast to post steady growth in 2017, overall slack in the Canadian economy remains persistent.  Without a significant uptick in economic growth, inflation will likely continue to trend at or below the Bank's 2 per cent target.  That, along with lingering uncertainty, will keep the Bank sidelined through 2017 with a chance of lowering its target rate should current downside risks to the economy become realized.


Copyright British Columbia Real Estate Association. Reprinted with permission.

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