At first glance, British Columbia’s economic complexion midway through the first half of 2012 appears rather pale. This observation is based primarily on the fact that employment in the Pacific province has been virtually unchanged over the past six months while the unemployment rate in the province has remained close to 7% since November of 2011.
By comparison, over the same period, the country as a whole has added over 80,000 jobs, 75,500 of which were full time.
Further, although the volume of home sales in B.C. increased slightly (+0.8% month over month) in March, year-to-date they are down by 11.8% compared to the first three months of 2011.
This weakening in demand appears to have led to a softening in average house prices which, according to the Canadian Real Estate Association, slipped by 8.8% month over month, seasonally adjusted, in March and on a year over year basis they are down by 8.1%.
Although this decline in house prices may partly reflect a shift to smaller dwellings, the fact that on a year to date basis the average price of houses sold in B.C. was down by 5% suggests that housing demand has moderated through the second half of 2011 and into 2012.
Reflecting this evidence of moderating housing demand, the supply of existing homes for sale remained elevated at 8.3 months of inventory while the volume of housing starts tumbled by 27.1% month over month in March. Despite the lacklustre pattern of job growth and cooling housing demand over the past several months, consumer spending, reflected by retail sales, exhibited solid gains in both nominal and real terms in the first two months of the year and was up by 9.1% year over year in February.
While job growth in the province over the past several months has been quite disappointing, a number of more forward-looking indicators are pointing to a material improvement in the province’s economic health.
First, in February, Statistics Canada reported that public and private organizations in British Columbia planned to increase their capital spending in 2012 by 10.1%, more than three times the 3.5% increase in investment they planned to make at the beginning of 2011.
According to the StatsCan Survey, private organizations plan to increase their spending by 9.7% in 2012 primarily due to a 13.0% increase in construction spending. In addition, public sector investment is projected to rise by 11.6% as a result of significant projected gains in both construction spending (+13.5%) and investment in machinery and investment (+11.6%).
This positive investment outlook was reinforced by the most recent (Q4/2011) B.C. Ministry of Jobs, Tourism and Innovation Major Project Inventory, which reported that the value of 349 projects started in the final quarter of 2011 was up by 18.8% compared to the value of the 328 projects started in the fourth quarter 2010.
Major projects which broke ground in late 2011 included the $200 million expansion of the Ridley Terminal, the $160 million upgrade to the Vancouver shipyard and the $475 million modernization to the Highland Valley Copper Mine.
Given this evidence of strengthening private sector investment, and a gradual improvement in both consumer spending and exports (driven by a steady pickup in U.S. demand, particularly for forest products), growth in B.C. should average in the range of 2.5% to 3% in 2012 and by 2.7% to 3.2% compared to an estimated increase of 2.7% in 2011.
Gross Domestic Product - British Columbia vs Canada