Geoff Cowling

Total Canadian employment was up by 11,200 jobs in October after jumping by 62,000 jobs in September. Part-time employment declined by 23,000 jobs while full-time work was up 34,000 jobs. The national unemployment rate ticked 0.1 points lower to 5.8 per cent. Total employment was up 1.1 per cent, or 206,000 jobs compared to this time last year.

In BC, employment fell by 1,100 jobs in October after adding 33,000 jobs in September.  On a year-over-year basis, employment was up 2 per cent and the provincial unemployment rate fell 0.1 points to 4.1 per cent, the lowest rate of unemployment in the province since December 2007.

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There were more treats than tricks in today's monthly GDP data. The Canadian economy expanded for a seventh consecutive month in August, growing at a 0.1 per cent monthly rate.  Growth was driven by the oil and gas and finance and insurance sectors.  The output of real estate agents and brokers jumped 2 per cent, the third straight monthly increase. However, output from Canadian real agents and brokers remained close to 17 per cent lower than the December 2017 level prior to the introduction of the B20 mortgage stress test.

With two months of third quarter GDP data now available, we are tracking overall third quarter growth at close to 2 per cent.  With the economy on solid footing, the Bank of Canada will continue to raise its policy rate over the next year. While we expect that the next move will be in January, a December rate hike can not be ruled out completely.

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US real GDP growth remained strong in the third quarter at 3.5 per cent, albeit down from 4.2 per cent in the second quarter. Economic growth was led by a strong contribution from consumer spending, which grew at its fastest rate since 2014, while an accumulation of business inventories made its largest contribution to growth since 2015.  Government spending grew at its fastest rate in two years, but business investment slowed and net exports created their largest drag on growth in 33 years as US tariffs dampened trade.  Today's data gives the US Federal Reserve further reason to keep tightening monetary policy, which will put further upward pressure on medium term interest rates in the US and Canada.
 
  The US economy has been riding high this year from debt-financed government stimulus, but that growth is expected to slow in 2019 as that stimulus fades and higher interest rates and a continued trade war act to slow the economy.

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The Bank of Canada raised its target for the overnight rate by 25 basis points to 1.75 per cent this morning. In the statement accompanying the decision, the Bank noted that the Canadian economy is expected to average growth of 2 per cent over the second half of 2018 before slowing to 1.9 per cent next year.  The renegotiation of NAFTA is expected to lower uncertainty and boost business investment and exports while households spending and the housing market are stabilizing after the implementation of the B20 mortgage stress test. Inflation is expected to remain close to 2 per cent over the Bank's two year projection horizon.
   
The resolution of NAFTA negotiations earlier in the fall paved the way for the Bank of Canada to resume its rate tightening this morning.  While inflation data came in slightly soft in September, the Canadian economy is still operating above its long-run trend which should keep inflation near the Bank's 2 per cent target. The Bank will meet one final time in 2018 at its December meeting, at which we expect policymakers will maintain the target rate at is current level before raising the target rate to 2 per cent in January 2019.  As the target rate continues on its path higher, Canadian mortgage rates will continue to rise, ultimately resulting in a 6 per cent qualifying rate by the end of 2019.

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Canadian retail sales declined 0.1 per cent on a monthly basis in August, but were 3.6 per cent higher on a year-over-year basis. Retail sales were lower in 7 of 11 sub-sectors representing 52 per cent of total retail trade. After a spending binge in 2017 which saw retail sales grow nearly ten per cent,  BC consumers have closed their wallets this year. BC retail sales declined 0.1 per cent on a monthly basis in August and were just 1.3 per cent higher year-over-year.  

Canadian inflation, as measured by the Consumer Price Index (CPI), registered 2.2 per cent in the 12 months to September, down from the nearly 3 per cent rate recorded in July and August. The Bank of Canada's three measures of trend inflation softened slightly in September, but still remain at or near the Bank's two per cent target.  In BC, provincial consumer price inflation was 2.5 per cent in the 12 months to September.  Although inflation numbers have softened slightly, it is still widely expected that the Bank of Canada will raise its overnight rate at its next meeting on October 24.

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Total Canadian employment increased by 62,000 jobs in September, reversing the similar sized decline from August. Part-time employment accounted for most of the gain, rising by 80,000 while full-time work declined.   The national unemployment rate declined 0.1 points to 5.9 per cent and total hours worked across the economy rose 0.6 per cent.  Total employment was up 1.2 per cent over this time last year.
 
In BC, employment rose for a third consecutive month as the economy added an astonishing 33,000 jobs in September (near the all-time record of 34,700 set in May 2015), including 26,000 full-time jobs. Employment in the third quarter was up 54,000 jobs after declining in the first half of the year.  On a year-over-year basis, employment was up 1.7 per cent and the provincial unemployment rate fell 1.1 points to 4.2 per cent, the lowest rate of unemployment in the province since June 2008.

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The Canadian economy expanded at a 0.2 per cent monthly rate in July after recording no change in June. Growth was fairly broad based with 12 of 20 industrial sectors reporting higher output, led by gains in manufacturing, wholesale trade and the recovery of real estate transactions after the introduction of the B20 mortgage stress test. With the first month of third quarter GDP data now available, we are tracking overall third quarter growth at 1.8 per cent .

While economic growth in Canada is on pace to slow down slightly compared to the second quarter, output is still expanding at slightly beyond its sustainable, long-run rate. That means continued upward pressure on inflation and further interest rate increases from the Bank of Canada.

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Canadian retail sales increased 0.3 per cent on a monthly basis in July, and were 3.7 per cent higher on a year-over-year basis. Retail strength was broad based with sales up in 8 of 11 sub-sectors representing 55 per cent of total retail trade. In BC, consumer spending continues to weaken as retail sales declined 0.5 per cent on a monthly basis and were just 1.2 per cent higher year-over-year. 

Canadian inflation, as measured by the Consumer Price Index (CPI), registered 2.8 per cent in the 12 months to August following a 3 per cent increase in prices in July. The Bank of Canada's three measures of trend inflation all increased in August and average 2.1 per cent.   In BC, provincial consumer price inflation was 2.9 per cent in the 12 months to August.  With inflation trending higher in recent months, the Bank of Canada is almost certain to raise its overnight rate at its next meeting in October.

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Canadian manufacturing sales increased for a third consecutive month, rising 0.9 per cent on a monthly basis in July. Sales were higher in 11 of 21 manufacturing sub-sectors, representing 68 per cent  of manufacturing sales.

In BC, where the manufacturing sector employs about 170,000 people,  manufacturing sales fell 1.7 per cent on a monthly basis but were 10 per cent higher year-over-year. Manufacturing in BC has maintained robust growth this year, particularly in the forestry sector. That growth is providing a boost to markets around the province in which the forestry sector is a major employer.

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Vancouver, BC – September 13, 2018.

The British Columbia Real Estate Association (BCREA) reports that a total of 6,743 residential unit sales were recorded by the Multiple Listing Service® (MLS®) across the province in August, a 26.4 per cent decrease from the same month last year. The average MLS® residential price in BC was $669,776, down 1.2 per cent from August 2017. Total sales dollar volume was $4.5 billion, a 27.3 per cent decline from August 2017.

“The downturn in housing demand induced by the mortgage stress-test is now largely behind us,” said Cameron Muir, BCREA Chief Economist. “The BC housing market is evolving along the same path blazed by Ontario and Alberta, where the initial shock of the mortgage stress-test is already dissipating, leading to increasing home sales.”

Year-to-date, BC residential sales dollar volume was down 19.9 per cent to $41 billion, compared with the same period in 2017. Residential unit sales decreased 21.3 per cent to 57,674 units, while the average MLS® residential price was up 1.7 per cent to $719,064.

Total Canadian employment declined by 52,000 jobs in August, reversing similar sized gains from July.  Part-time job losses, concentrated in Ontario, were the culprit behind the out-sized decline, falling by 92,000 jobs while full-time jobs rose by 40,000.   The national unemployment rate increased 0.2 points to 6 per cent and total hours worked across the economy rose 1.6 per cent.  Total employment was up 0.9 per cent over this time last year.
 
In BC, employment rose for a second consecutive month as the economy added close to 10,000 jobs in August. On a year-over-year basis, employment was flat and the provincial unemployment rate rose 0.3 points to 5.3 per cent as more people were actively searching for work.

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The Bank of Canada maintained its target for the overnight rate at 1.50 per cent this morning. In the statement accompanying the decision, the Bank noted that the Canadian economy is evolving in line with its projections and that real GDP growth is expected to slow in the third quarter due to fluctuations in energy production and exports. Inflation is anticipated to come down from the 7-year high of 3 per cent rate observed in July, falling back to 2 per cent in early 2019. The Bank further noted that housing markets are beginning to stabilize following the implementation of the mortgage stress test. Overall, the Bank's assessment is that higher interest rates will be warranted to achieve the 2 per cent inflation target, but policymakers are closely monitoring NAFTA negotiations and their impact on the inflation outlook.
   
With the threat of significant trade disruption looming from NAFTA negotiations, the Bank chose to pause its rate tightening cycle. However, strong economic growth over the past year has pushed the Canadian economy beyond its full-employment level, creating upward pressure on inflation. Rising inflation and an economy operating at capacity means that the Bank of Canada will continue on its rate tightening path, likely at it next meeting in October with an ultimate goal of the overnight rate returning to between 3 and 3.5 per cent over the next two years.

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Growth in the Canadian economy rebounded in the second quarter of 2018, with output expanding 2.9 per cent following just 1.4 per cent growth in the first quarter. Rising exports, an increase in household spending and a renovation spending driven rebound in housing investment were all major contributors to growth in the second quarter.

Very strong economic growth over the past year has pushed the Canadian economy beyond its full-employment level, creating upward pressure on inflation. Consumer prices rose at a 3 per cent rate in July, the first time inflation has reached that level since 2011. Rising inflation and an economy operating beyond its capacity means that he Bank of Canada will continue on its rate tightening path. The next rate hike could come as early as September though more likely in October once current NAFTA negotiations have concluded.

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Vancouver, BC – August 30, 2018. The BCREA Commercial Leading Indicator (CLI) recovered in the second quarter following a rare first quarter decline. The index rose 1.9 points to an index level of 135.4. That increase represents a 1.4 per cent rise from the first quarter of 2018. The index is 2.7 per cent higher than this time one year ago.

“The CLI was propelled higher by strong manufacturing sales and employment growth,” says BCREA Deputy Chief Economist Brendon Ogmundson. “This suggests strong performance in the industrial sector through the balance of the year.”

The trend in the CLI has flattened somewhat over the past six months, which signals continued positive, if somewhat slower, growth in commercial real estate activity.

BCREA 2018 Third Quarter Housing Forecast Update

Vancouver, BC – August 20, 2018. The British Columbia Real Estate Association (BCREA) released its 2018 Third Quarter Housing Forecast Update today.

Multiple Listing Service® (MLS®) residential sales in the province are forecast to decline 21 per cent to 82,000 units this year, after recording 103,768 residential sales in 2017. MLS® residential sales are forecast to increase 8 per cent to 88,700 units in 2019. The 10-year average for MLS® residential sales in the province is 84,800 units.

“The BC housing market is grappling with a sharp decline in affordability caused by tough B20 stress test rules for conventional mortgages,” said Cameron Muir, BCREA Chief Economist. “While these rules have had a negative effect on housing demand across the country, the impact has been especially severe in BC’s large urban centres because of already strained housing affordability.”

In spite of the policy-driven downturn in housing demand, strong fundamentals continue to underpin the market. Demographics are highly favourable, especially the millennial generation who are now entering their household-forming years. In addition, low unemployment is leading to significant upward pressure on wages and, by extension, household wealth and confidence.

The pullback in BC home sales is helping alleviate a chronic shortage of supply. After trending at decade lows, active listings in the province were up nearly 20 per cent in July. The combination of slower housing demand and an increase in the inventory of homes for sale has trended most markets toward balanced conditions. This means more selection for home buyers, fewer multiple offer situations and less upward pressure on home prices.

Vancouver, BC – August 13, 2018. The British Columbia Real Estate Association (BCREA) reports that a total of 7,055 residential unit sales were recorded by the Multiple Listing Service® (MLS®) across the province in July, a 23.9 per cent decrease from the same month last year. The average MLS® residential price in BC was $695,990, down 0.4 per cent from July 2017. Total sales dollar volume was $4.9 billion, a 24.2 per cent decline from July 2017.

“The BC housing market continues to grapple with the sharp decline in affordability caused by tough new mortgage qualification rules,” said Cameron Muir, BCREA Chief Economist. “However, less frenetic housing demand has created more balanced market conditions in many regions, leading to fewer multiple offers and more choice for consumers.”

Year-to-date, BC residential sales dollar volume was down 18.9 per cent to $37 billion, compared with the same period in 2017. Residential unit sales decreased 20.6 per cent to 50,926 units, while the average MLS® residential price was up 2.1 per cent to $725,639.

Total Canadian employment increased by 54,000 jobs in July, though all of those gains were concentrated in part-time work with full-time employment falling on a monthly basis.  The national unemployment rate declined 0.2 points to 5.8 per cent and total hours worked across the economy rose 1.3 per cent. 
 
In BC, employment rose by 11,000 jobs thanks to a surge in full-time employment. However, July's gains mark only the second month of job growth in the province in 2018. On a year-over-year basis, employment was down 0.2 per cent and the provincial unemployment rate ticked 0.2 points lower to 5 per cent. 

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Canadian housing starts declined 16 per cent on a monthly basis in July to 206,300 units at a seasonally adjusted annual rate (SAAR).  The six-month trend in Canadian housing starts has been on a steady decline in the past few months and is now at  220,000 units SAAR.

In BC, total housing starts increased 24 per cent on a monthly basis to 42,500 units SAAR but were down 7 per cent year-over-year. On a monthly basis, starts of multiple units were up 35 per cent to an annual rate of 33,200 units while single detached fell 4 per cent. Compared to July 2017, multiple units starts were down 5 per cent while single detached starts were 11 per cent lower.
 
Looking at census metropolitan areas (CMA) in BC: 

• Total starts in the Vancouver CMA were down 10 per cent year-over-year but jumped 48 per cent on a monthly basis from June due to a surge in multiple unit starts.

• In the Victoria CMA, housing starts fell 18 per cent from June to 4,880 unit SAAR and were down 40 per cent year-over-year. Total housing starts in the Victoria CMA are up 14 per cent in the first seven months of 2018 as builders respond to strong housing demand in the area, particularly in West Shore municipalities like Langford and Colwood.
• In the Kelowna CMA, new home construction increased 23 per cent year-over-year as a result of new multiple unit projects getting underway.  However, on a monthly basis, total starts were down 47 per cent from a very strong June to a rate of just under 2,000 units SAAR.

• Housing starts in the Abbotsford-Mission CMA fell 15 per cent on a year-over-year basis, with the decline entirely due to lower levels of new construction in multiple unit housing. However, starts in July were more than triple those recorded in June, coming it at a rate of 1,750 units SAAR.

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The total value of Canadian building permits declined 2.3 per cent on a monthly basis in June. The decline was the result of lower construction intentions for residential buildings after a strong May.

In BC, the total value of permits fell 1.8 per cent on a monthly basis with non-residential permits posting a 7.8 per cent decline while residential permits were essentially flat. Year-over-year, total permit values were up 6.6 per cent to $1.45 billion as residential permits rose nearly 14 per cent to $1.16 billion.

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

• Permits in the Abbotsford-Mission CMA fell 27 per cent on a monthly basis to $31.9 million. Year-over-year, permit values were down 26 per cent.

• In the Victoria CMA, total construction intentions were up 9.2 per cent to $160.4 million, a nearly 30 per cent rise over this time last year.

• In the Kelowna CMA, permits fell 12.3 per cent on a monthly basis, but were up 20.5 per cent year-over-year to $95.5 million.

• The Vancouver CMA recorded permit activity valued at $832.6 million, a 2.6 per cent decline from May and roughly flat year-over-year.

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Canadian real GDP rose 0.5 per cent in May, an acceleration from just 0.1 per cent growth in the month of April. Growth was distributed across a breadth of sectors, with 19 of 20 industrial sectors reporting increased output. The mining and oil and gas sector led the way, posting 0.6 per cent monthly growth in May. Office of real estate agents and brokers fell for the fourth time in five months, in part due to declining home sales in BC resulting from the ongoing impact of the mortgage stress test.  With today's release, we are tracking second quarter real GDP growth in Canada at close to 3 per cent.

Very strong second quarter economic growth and a firming of inflation near its 2 per cent target continues to signal higher interest rates on the horizon. We expect the Bank of Canada will raise its overnight rate at least one more time this year with mortgage rates rising in tandem.

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