Regional Economic Outlook. London Region

Transcription

1 2015 Regional Economic Outlook London Region Presented by the Credit Unions of Ontario and the Ontario Chamber of Commerce 1 The region is expected to add several thousand jobs (6,200) over the next two years as employment rebounds from a net loss in The London Economic Region covers Oxford, Elgin and Middlesex counties and is home to over 660,000 residents. The region s economic base is relatively more concentrated in manufacturing and agriculture, its primary export industries, and a fairly broad service industry base. a less than one percent increase since the recession low. In 2014 manufacturing employment fell to its lowest level on record, (begins in 1987), at an estimated 42,400 persons with several plant closings, among them Kellogg s, contributing to this situation. However, CAMI 2 The unemployment rate is expected to drop substantially over the next two years, falling from 7 percent in 2014 to 5.4 percent in Its principal centre is the London CMA, comprised of the cities of London and St. Thomas and their neighbouring urban jurisdictions. The CMA contains most of the region s manufacturing base and is home to 500,000 residents. Automotive in Ingersoll recently hired new workers. Officials with the plant, which currently employs around 3,100 people, have announced plans to hire up to 120 additional workers in Performance is mixed in other industries with notable employment 3 The region s housing market performed strongly in 2014, as housing sales increased by 6.4 percent compared to 2013 The region s economy has experienced a slow recovery from the last recession with several key economic indicators still below pre-recession levels. Much of this performance is linked to the region s declining manufacturing sector and the resulting negative spinoffs to the gains in 2014 compared to 2013 in education, transportationwarehousing, and primary agriculture. In the opposite vein and outside manufacturing, employment in the professional-scientific-technical and the finance-insurance-real estate industries underwent substantial broader economy. External conditions declines. Employment in the latter such as the depreciated Canadian industry fell to a 10-year low. dollar, stronger U.S. growth, and lower oil prices set the stage for potentially Other regional economic indicators more manufacturing exports from the such as building permits issued are region. lower so far in 2014 compared to Non-residential permits will be Labour market indicators are the about 10 percent lower with a near most telling data on a regional 20 percent drop in private permits economy and here the picture partially offset by a 20 percent jump remains rather dim. Employment in public permits. Residential permits in 2014 slipped slightly from 2013, are running slightly below and since 2009, it is only 1.8 percent or 5,700 persons higher in the Non-residential building construction London ER. The situation is slightly investment spending in the London worse in the London CMA with CMA is on pace for a 40 percent 2015 Regional Economic Outlook: London Economic Region 1

2 decline and the second consecutive annual decline following a surge in government and commercial building activity in 2011 and Housing sales upshifted in 2014 and will close out the year with a 6.4 percent gain in the London ER and 7.9 percent in the London CMA, proxied by the London and St. Thomas Real Estate Board. These were the highest unit sales since the recession but below pre-recession levels. Record low mortgage rates and pent-up demand are likely the main drivers. Housing prices followed sales higher and the average sale price advanced 3.6 percent to $252,000 in 2014 in the London ER and 3.4 percent to $255,400 in the London CMA. Both are at record highs. The outlook for the region s key manufacturing industry became brighter when General Dynamics Land Systems Canada won a $10 billion contract to build armoured defence vehicles for export in This work will be spread over many years keeping plant workers and subcontractors busy. Improved external macro factors in 2015 and 2016 will also benefit local manufacturers though this may not preclude future plant closings or restructurings in older, less efficient operations. Recent trends in the agriculture industry bode well for farming and food manufacturing in the London ER. Aggregate farm cash sales, production, value added and product prices will remain near record highs. Agricultural activity is derived from intensive, productive, and diverse farms serving local demand and generating exports. Some primary agricultural activities are inputs to higher valued-added agribusiness activities. Farmers will benefit from lower energy costs and the lower Canadian dollar though imported machinery will cost more. The Canada-EU trade agreement will come into effect in 2016 presenting opportunities and challenges to this industry. In service-producing industries, the outlook is most favourable for transportation-warehousing, education, and health. Most other industries will grow at a slower pace or possibly contract due to industryspecific competitive forces. One such industry is retail trade which faces considerable challenges from online and discount retailers. For example, Kingsmill s, a family-owned department store, closed in London. Total employment in the London ER is forecast to rise 0.8 percent in 2015 and 1.1 percent in This compares to a 0.4 percent decline in Employment will remain below the pre-recession high through The unemployment rate will decline despite modest employment growth because labour force growth will stall. The region s unemployment rate is predicted to decline to 6.1 percent in 2015 and fall further to 5.4 percent in 2016 compared to 7.0 percent in It was 9.8 percent in Labour supply issues will become more critical for future economic growth. A declining labour force participation rate since the early 2000s is evident in most Ontario regions and Canadian provinces, as well as in the U.S. due to aging demographics. A cyclical pickup in the participation rate which would alleviate some labour supply pressure may occur when job opportunities increase and wages are more attractive. Housing sales in the London ER are forecast to increase approximately four percent in 2015 and in 2016 following a 6.4 percent rise in Mortgage rates will remain very attractive to prospective buyers even though some increases are likely in The average sale price is forecast to rise 2.8 percent in 2015 and 3.5 percent in 2016 following a gain of 3.6 percent last year. Sales and price trends are very similar for the London CMA. Residential building permits are forecast to rise modestly through 2016 as supported by pre-sale activity. This is reflective of a housing market grinding higher in a less than robust local economy largely on low mortgage rates and pent-up demand. A substantial demand upshift leading to a similar supply response is likely beyond this two-year forecast horizon Regional Economic Outlook: London Economic Region 2

3 Non-residential building permits in the London ER and CMA are forecast to gain momentum through Commercial real estate market conditions will not be attractive for a market-wide investment upturn though project-specific investments will occur. Population growth in the London ER and CMA is forecast to improve slightly through 2016 on a lower net interprovincial outflow and immigration returning to recent levels following declines in the prior two years. The region will continue to receive a net inflow from other parts of Ontario. Read on to find out how the London economic region stacks up against the rest of Ontario >>> Regional Economic Outlook London Labour Force (000s) % change Total Employment (000s) % change Unemployment Rate MLS Residential Sales 9,787 9,783 10,405 10,800 11,200 % change MLS Residential Average Price 237, , , , ,000 % change Residential Permits (units) 3,121 2,971 2,875 3,000 3,300 % change Non-Residential Permits ($ millions) % change Private Non-Residential Building Permits ($ millions) % change Public Non-Residential Building Permits ($ millions) % change Population (000s) % change Net Migration 4,168 3,163 2,600 3,400 4,200 Net International 2,848 2,394 1,800 2,000 2,200 Net Interprovincial ,384-1, Net Intraprovincial 2,152 2,153 2,300 2,000 2,200 Source: Statistics Canada, CREA, Central 1 Credit Union forecasts. Notes: Housing sales and prices represent combined activity in real estate boards within the region Regional Economic Outlook: London Economic Region 3

4 Census METROPOLITAN AREA OUTLOOK London Total Employment (000s) % change Unemployment Rate MLS Residential Sales* 8,272 8,113 8,751 9,100 9,500 % change MLS Residential Average Price* 241, , , , ,000 % change Residential Permits (units) 2,243 2,317 2,175 2,300 2,500 % change Non-Residential Permits ($ millions) % change Population (000s) % change Source: Statistics Canada, CREA, Central 1 Credit Union forecasts. *Approximated with data from the London & St. Thomas Association of REALTORS. Read on to find out how the London economic region stacks up against the rest of Ontario >>> 2015 Regional Economic Outlook: London Economic Region 4

5 2015 Regional Economic Outlook Summary of Ontario Summary Canadian dollar, and cost savings by External factors are setting the stage consumers and businesses, from lower for a better performing Ontario oil prices, notably in transportation, economy and its regional economies. will push up the province s real GDP 1 Improving external conditions support higher provincial growth. The expected improvement is broadly based across industries and regions, though some manufacturers will experience negative fallout from the decline in exports to oil-producing growth to 2.7 percent in each of the next two years. This compares to an estimated 1.9 percent in 2014 and 1.3 percent actual in provinces. Overall, Ontario is a net The global economic recovery 2 Regional economies boosted by varying degrees. beneficiary of low oil prices and, when combined with other drivers such as the lower Canadian dollar remains uneven and slow, with weakness in Europe, slowing growth in China, recession in Brazil and and faster U.S. economic growth, Russia, and sluggish commodity- 3 Narrowing regional growth disparities. economic prospects are improving. Regional economies in southwestern based economies offset by firmer growth in the U.S. and U.K. The collapse in oil prices has mixed and central Ontario are well- impacts which will contribute to lower positioned to benefit from the headline inflation in many countries expected improvement in and prompt some central banks to manufacturing, agriculture, and ease or postpone tightening. However, tourism. Business investment gains low energy prices will support global appear later in the forecast. Domestic economic growth by reallocating economic activity, for example in some energy-related savings to housing, will also firm up in most spending on non-energy goods and regions and will be aided by higher services. Oil-producing economies will population growth. Northern regions, bear the brunt of this price collapse which are heavily dependent on and will drag down overall economic mining, face less optimistic prospects. growth. On balance, however, global growth should receive a lift. Favourable external conditions for Canada s economic growth will Ontario s economy be negatively affected by the oil Ontario stands to benefit from price collapse, and depending external forces more than at any time on where oil prices settle and on in the past 10 years. The combination how long prices remain low, the of higher U.S. growth, the lower impact on real GDP growth could 2015 Regional Economic Outlook: London Economic Region 5

6 be 0.5 percent in This will cause the Bank of Canada to hold off on a rate increase until the first quarter of 2016 and possibly later. With the U.S. Fed poised for its first rate increase around mid-2015, the narrowing interest rate differential, along with the widening growth differential, will put downward pressure on the Canadian dollar. reduced oil-related costs, the lower loonie, ongoing low interest rates, and improved provincial growth will benefit all regions, though initial conditions and industry-specifics will contribute to some growth differences. The improved growth backdrop will take time for its benefits to work through the economy with growth gaining momentum through Interprovincial migration flows will reflect the changing economic circumstances between the oil-producing regions of the country and the rest of Canada. Ontario s net interprovincial outflow to Alberta of about 15,000 persons annually will decline and turn into a net inflow, providing a small lift to the province s population growth rate. There are negative impacts from the oil price collapse that will ripple through Ontario s economy. Less capital expenditure by oil companies will mean less demand for machinery, equipment, fabricated metal products, professionaltechnical services, and financing from Ontario firms. Job layoffs in the oil patch will translate directly to lower income for commuting workers from Ontario. Lower government revenue from these sources is another negative. Gauging the net positives and negatives from lower oil prices depends on how low prices will fall and for how long. Current thinking is that it is a net positive for Ontario and other oil-importing provinces. The housing market will hold up and post further gains under improving economic and population growth, low interest rates, and pent-up demand in some of the province s regions. Markets in the manufacturing regions stand to gain the most given their modest recovery since the recession. Manufacturing-oriented economies outside of the Toronto and Kitchener-Waterloo-Barrie regions are beginning to see gains and are poised for faster growth. The composition of manufacturing activities in a region will make a difference as well, but a general improvement is likely in most types of manufacturing. Southwestern regions and the Hamilton-Niagara region are favourably positioned and also have the added advantage of robust agricultural and, in some cases, tourism sectors. Northern regions will continue to lag because of their large dependence on the mining sector, which faces weak prices and export prospects as long as slow growth persists in emerging markets such as China. However, the wood products sector faces better prospects from rising U.S. housing starts. One trend not expected to change soon is the dominance of a metropolitan area in a region relative to rural centres. In some regions, economic and population trends are considerably less positive in those rural areas than in the larger, more industry-diversified metro area, which is usually a region s service and distribution hub. Regional growth rotation Ontario s regional economies are quite diverse in their industry makeup though some dominant aspects exist in several of them. Higher U.S. growth, 2015 Regional Economic Outlook: London Economic Region 6

7 LABOUR FORCE (000s) Regional Economic Outlook Hamilton-Niagara Peninsula % change Kingston-Pembroke % change Kitchener-Waterloo-Barrie % change London % change Muskoka-Kawarthas % change Northeast % change Northwest % change Ottawa % change Stratford-Bruce Peninsula % change Toronto 3, , , , ,665.0 % change Windsor-Sarnia % change Ontario 7, , , , ,633.0 % change Source: Statistics Canada, Central 1 Credit Union forecasts Regional Economic Outlook: London Economic Region 7

8 Employment (000s) Regional Economic Outlook Hamilton-Niagara Peninsula % change Kingston-Pembroke % change Kitchener-Waterloo-Barrie % change London % change Muskoka-Kawarthas % change Northeast % change Northwest % change Ottawa % change Stratford-Bruce Peninsula % change Toronto 3, , , , ,392.0 % change Windsor-Sarnia % change Ontario 6, , , , ,137.7 % change Source: Statistics Canada, Central 1 Credit Union forecasts Regional Economic Outlook: London Economic Region 8

9 Regional Economic Outlook Unemployment Rate (%) Hamilton-Niagara Peninsula Kingston-Pembroke Kitchener-Waterloo-Barrie London Muskoka-Kawarthas Northeast Northwest Ottawa Stratford-Bruce Peninsula Toronto Windsor-Sarnia Ontario Source: Statistics Canada, Central 1 Credit Union forecasts Regional Economic Outlook: London Economic Region 9

10 Regional Economic Outlook NON-RESIDENTIAL BUILDING PERMITS ($ millions) Hamilton-Niagara Peninsula 1,491 1, % change Kingston-Pembroke % change Kitchener-Waterloo-Barrie , ,100 % change London % change Muskoka-Kawarthas % change Northeast % change Northwest % change Ottawa 1,284 1,179 1,200 1,100 1,220 % change Stratford-Bruce Peninsula % change Toronto 5,995 6,193 6,200 6,650 7,000 % change Windsor-Sarnia % change Ontario 12,166 11,666 12,022 11,720 12,560 % change Source: Statistics Canada, Central 1 Credit Union forecasts Regional Economic Outlook: London Economic Region 10

11 Regional Economic Outlook RESIDENTIAL BUILDING PERMITS (units) Hamilton-Niagara Peninsula 5,416 4,975 5,000 5,300 5,700 % change Kingston-Pembroke 1,928 2,050 1,850 1,850 2,000 % change Kitchener-Waterloo-Barrie 6,325 7,084 7,900 7,500 7,900 % change London 3,121 2,971 2,875 3,000 3,300 % change Muskoka-Kawarthas 1,737 1,819 2,100 2,150 2,260 % change Northeast 1,484 1,305 1,100 1,000 1,000 % change Northwest % change Ottawa 8,211 6,643 8,950 7,800 8,000 % change Stratford-Bruce Peninsula 1,079 1,088 1,050 1,075 1,125 % change Toronto 38,841 40,256 35,000 36,500 38,500 % change Windsor-Sarnia 1,313 1,492 1,425 1,500 1,600 % change Ontario 69,884 70,133 67,640 68,075 71,810 % change Source: Statistics Canada, Central 1 Credit Union forecasts Regional Economic Outlook: London Economic Region 11

12 Regional Economic Outlook MLS Residential Sales (units) Hamilton-Niagara Peninsula 20,572 21,048 22,274 23,000 24,000 % change Kingston-Pembroke 7,685 7,272 7,095 7,200 7,350 % change Kitchener-Waterloo-Barrie 19,977 20,706 21,101 22,000 23,000 % change London 9,787 9,783 10,405 10,800 11,200 % change Muskoka-Kawarthas 8,439 8,573 9,054 9,300 9,600 % change Northeast 6,515 6,167 5,842 5,750 5,700 % change Northwest 2,056 2,053 2,264 2,300 2,375 % change Ottawa 17,184 16,539 16,472 16,750 17,400 % change Stratford-Bruce Peninsula 3,806 3,700 4,017 4,200 4,350 % change Toronto 93,765 94,588 99, , ,800 % change Windsor-Sarnia 7,834 8,110 8,255 8,500 8,800 % change Ontario 197, , , , ,575 % change Source: CREA, Statistics Canada, Central 1 Credit Union forecasts Regional Economic Outlook: London Economic Region 12

13 Regional Economic Outlook MLS RESIDENTIAL AVERAGE SALE PRICE ($) Hamilton-Niagara Peninsula 314, , , , ,000 % change Kingston-Pembroke 240, , , , ,000 % change Kitchener-Waterloo-Barrie 301, , , , ,000 % change London 237, , , , ,000 % change Muskoka-Kawarthas 292, , , , ,000 % change Northeast 209, , , , ,000 % change Northwest 182, , , , ,500 % change Ottawa 327, , , , ,000 % change Stratford-Bruce Peninsula 219, , , , ,000 % change Toronto 504, , , , ,500 % change Windsor-Sarnia 172, , , , ,000 % change Ontario 384, , , , ,858 % change Source: CREA, Statistics Canada, Central 1 Credit Union forecasts Regional Economic Outlook: London Economic Region 13

14 POPULATION (000s) Regional Economic Outlook Hamilton-Niagara Peninsula 1, , , , ,465.5 % change Kingston-Pembroke % change Kitchener-Waterloo-Barrie 1, , , , ,325.0 % change London % change Muskoka-Kawarthas % change Northeast % change Northwest % change Ottawa 1, , , , ,342.0 % change Stratford-Bruce Peninsula % change Toronto 6, , , , ,535.0 % change Windsor-Sarnia % change Ontario 13, , , , ,933.1 % change Source: Statistics Canada, Central 1 Credit Union forecasts. Disclaimer: Regional Economic Outlook: London (the Analysis ) may have forward-looking statements about the future economic growth of the Province of Ontario and its regions. These statements are subject to risk and uncertainty. Actual results may differ due to a variety of factors, including regulatory or legislative developments, competition, technological change, global capital market activity and general economic conditions in Canada, North America or internationally. This list is not exhaustive of the factors that may affect any of the Analysis forward-looking statements, and all factors should be considered carefully by readers and readers should not place undue reliance on the Analysis forward-looking statements. The information contained in this Analysis ( Content ) does not constitute professional advice, and should not be relied upon as accurate, reliable, complete, timely or fit for any particular purpose without receiving appropriate and qualified professional advice. The Content is provided on an as is basis, without any representations, warranties, conditions or guarantees, whether express or implied, including any representations, warranties, conditions or guarantees as to the accuracy, reliability, completeness, currency, fitness for a particular purpose and non-infringement, all of which are hereby disclaimed by Central 1 Credit Union, the Ontario Chamber of Commerce, and all of the credit unions of Ontario and all the chambers of commerce and boards of trade in Ontario to the fullest extent permitted by law. Central 1 Credit Union, the Ontario Chamber of Commerce, and all of the credit unions of Ontario and all the chambers of commerce and boards of trade in Ontario and their respective directors, officers, employees and agents will not under any circumstances be liable for any loss or damage in connection with the use of the Content. Readers use of the Content is at their own risk Regional Economic Outlook: London Economic Region 14