5.0 ECONOMIC GROWTH PROJECTIONS 5.1 Growth Projection Methodology This section begins with a description of the logic and process underlying the study team s approach to growth projections. It then examines Muskoka s key economic drivers as a basis for future growth. It highlights the changing role of manufacturing output and employment, and of economic activity driven by the Baby Boom generation. Their implications and those stemming from population growth in Ontario s urban centres are presented for Muskoka, in support of employment and population growth projections for the District to the year 2031. In Section 3.4 of this report it was noted that growth in a community will typically occur only if its export base is expanding. Expansion of the exportbased industries drives the growth of the community at large. Without growth in a community s export-based industries, growth in its communitybased activities is unlikely to occur. The population of a community (i.e. the number of permanent residents) is unlikely to grow unless the community s economic base is growing. Growth in employment in the export-based or economic base industries attracts workers and their dependents. These residents need places to live, as well as food, clothing and other household goods and services. Their needs lead to the expansion of community-based jobs in the retail, finance, health, education and other service sectors. In communities where the economic base is expanding, job seekers are moving in, along with their dependents, to take the newly created economic base jobs. For example, Calgary s oil and gas extraction industry is growing rapidly. The need for new workers in Calgary is resulting in the building of new homes and retail space and a host of new jobs across all the community based industries. As a result, Calgary s population is growing rapidly. In communities where the economic base is declining, workers are leaving to find employment elsewhere, taking their dependents with them. For example, Timmins mining industry is declining in employment along with other economic base industries. 11 As a result, the population of Timmins is stagnant and is likely going to decline in the decades ahead. The C4SE projection methodology explicitly recognizes the distinction between economic base and community-serving activities (see Figure 5.1). It integrates economic development, community development and demographic growth through the labour market. The model links total employment the sum of both economic base and community base employment and the number of people available for work in a community. 11 According to the 2006 Census the Calgary area s population grew 13.4 percent between 2001 and 2006 while the Timmins area s population fell by 0.2 percent. Malone Given Parsons Ltd. * Centre for Spatial Economics 41
If employment growth exceeds the number of workers available, net migration increases to match labour market requirements. If employment growth falls short of the number of workers available, net migration turns negative as workers leave to find jobs where they are more plentiful, thus again clearing the local labour market. The projection system translates export-based jobs into community-based jobs. Total employment and labour market conditions combine to determine the total labour force in the community. The model then links labour force growth to the community s permanent population growth. The next subsections describe the forces underlying Muskoka s growth potential, prior to applying the model to generate the report s employment and population projections. Figure 5.1: The Economic & Demographic Projection Framework Economics Demographics Headship Rates Housing Requirements Export Drivers Population by Age and Birth Rates Births Gender Mortality Rates Deaths Export Community Labour Force Based Driven Participation Employment Employment and Utilization Rates Total Emplyment Available Labour Force Net Migration Net Natural Population Growth The C4SE framework handles the demographic projections of a community (yellow section) as do most forecasters, drawing on information regarding the population by age and gender in a base year and altering it in the future using assumed fertility and mortality rates. The C4SE framework, however, drives net migration by linking it to the community s labour market requirements. This need is driven by the potential for the community to grow its economic base which, in turn, is determined by the potential for growth in its exportable goods and services (grey section). Source: Centre for Spatial Economics Malone Given Parsons Ltd. * Centre for Spatial Economics 42
5.2 The Muskoka Economy and Its Key Drivers Section 3.4 of this report showed that of the 8,118 jobs accounting for Muskoka s economic (export) base in 2001, 57 percent (or 4,623) could be attributed to meeting the needs of tourists and seasonal residents, 38 percent (or 3,110) to manufacturing and the remaining 5 percent (385) to other industries (forestry and aggregates extraction). These economic base industries are the key drivers of the Muskoka economy. The Centre for Spatial Economics produces and routinely updates longterm, detailed economic and demographic projections for Canada, its provinces and its major metropolitan areas. Our projections for Ontario show that employment in the manufacturing sector has levelled off, and that it will decline into the future. Our projections for the primary sector (e.g., agriculture, forestry) suggest that employment will continue to decline in that sector as it has for the last two decades. Our projections call for real output in each of these two sectors to continue to grow in the future in line with growth in our export and domestic markets for the products they produce. But our projections also call for output per worker (i.e. productivity) to continue to improve in both, reflecting their ever-increasing application of innovation and technology. Figures 5.2 and 5.3 illustrate the path of output, employment and productivity in Ontario s manufacturing sector over the last two decades. Productivity growth keeps producers throughout Ontario competitive in world markets and provides the improvements to the standard of living for its residents. Productivity growth also means reduced employment growth or, in the case of the primary and manufacturing sectors, employment decline. Communities can no longer expect these two industries to fuel community employment and population growth the way they once did throughout the 1950 s to the 1980 s. Our projections do call for considerable growth in production and employment in a number of service sectors. Many of which are replacing goods producers as the engines of community growth: Many communities, mainly those in metropolitan areas, are benefiting from the rapid rate of growth in business services that has been underway for several decades. The business service sector covers traditional providers such as accountants, lawyers, engineers and architects. But it now also increasingly reflects rapidly growing providers such as those in software development, computer systems design, advertising, marketing, management consulting, scientific and technical consulting, most of them serving markets beyond the local community. Malone Given Parsons Ltd. * Centre for Spatial Economics 43
Figure 5.2: Ontario Manufacturing Output and Employment from January 1987 to March 2007 (Seasonally Adjusted) 200,000 2,500 180,000 Employment (Thousands of Persons, Seasonally Adjusted) (Right Scale) 2,250 160,000 2,000 140,000 1,750 120,000 1,500 100,000 Gross Domestic Product ($97 Millions, Seasonally Adjusted at Annual Rates) (Left Scale) 1,250 80,000 1,000 60,000 750 40,000 500 20,000 250 0 1987 1988 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 0 Source: Statistics Canada and C4SE Figure 5.3: Ontario Manufacturing Productivity (Output per Worker) from January 1987 to March 2007 (Seasonally Adjusted) 90,000 80,000 Productivity = Output per Worker (Constant 1997 Dollars) 70,000 60,000 50,000 40,000 30,000 20,000 10,000 0 1987 1988 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 Source: Statistics Canada and C4SE Malone Given Parsons Ltd. * Centre for Spatial Economics 44
Many communities are also setting themselves up as regional providers for retail shopping, health care delivery or specialized education. In the past these industries have been considered only as part of the community base. In many centres today portions of these industries are helping to expand the export base. Other communities are spurring economic development by meeting the needs of tourists, seasonal residents and retirees. Thanks to rising real incomes and the aging of the post-war Baby Boom generation these markets are some of the fastest growing in the country. 5.3 Growth Prospects and Projections As noted above, our projections call for employment to decline over the next few decades in both the primary and manufacturing sectors in Ontario. Therefore we see limited scope for the expansion of Muskoka s economic base in either of these two industries. For example, there were fewer people in the District employed in the primary sector in 2001 than in the mid- 1980s, a pattern reflecting trends province-wide. Interestingly, growth in manufacturing employment in Muskoka over that period exceeded that of the province in that sector. However, Dura Automotive Systems, Muskoka s biggest manufacturing sector employer accounting for almost 550 jobs, recently announced that it will cease all operations in the District this fall. This decision will significantly reduce the size of Muskoka s manufacturing employment base which in 2001 totalled 3,105 jobs. For the purposes of generating economic and demographic projections for Muskoka we have assumed in all the alternatives that employment by place of work in the primary and manufacturing sectors will decline from this point forward at a pace in line with our projected declines for those sectors on a province-wide basis (Figure 5.4). The location quotient analysis carried out in Section 3.4 of this report revealed that business services have not yet developed in the District to the point where they account for a portion of the area s economic base. 12 This is a sector that is growing rapidly at the provincial level and is one that facilitates the earlier-than-retirement relocation of many self-employed individuals to the Muskoka area. Jobs in this sector will grow in Muskoka in the decades ahead and some of that growth may be export-induced. Currently, the number of jobs in the area is relatively low suggesting that when expertise is required by permanent and seasonal residents or businesses they obtain these services outside the District. 12 The location quotient for Muskoka s professional, scientific and technical services industry was 46 in 2001 while that for management of companies and administrative support was 72, both well below 100 and therefore suggesting they serve only the local community, not outside communities. Malone Given Parsons Ltd. * Centre for Spatial Economics 45
Figure 5.4: Projected Employment in Muskoka in the Primary and Manufacturing Sectors 2001 to 2031 3,500 Manufacturing Sector Employment 3,000 2,500 2,000 1,500 1,000 Primary Sector Employment 500 0 2001 2003 2005 2007 2009 2011 2013 2015 2017 2019 2021 2023 2025 2027 2029 2031 Source: C4SE The location quotient analysis clearly identified tourism and second home development as key drivers for economic and population growth in the District. The Ontario Ministry of Tourism s definition of tourists or visitors includes people visiting the area and staying in some form of commercial accommodation (a hotel, resort, camp site); seasonal residents and renters staying in cottages or time-share or fractional units 13 ; friends and relatives visiting both permanent and seasonal residents; and people travelling for business reasons. For purposes of this study, we use tourists or visitors in accordance with the Ministry definition. To distinguish between visitor sub-groups, we use transient tourists to describe day-visitors and those using commercial accommodation or visiting friends and relatives, and seasonal residents to describe those using owned or rented seasonal units (see Figure 5.5). Although the Second Home Study and the Growth Strategy consider seasonal residents separately from their guests and renters, statistically and from an economic perspective, it is difficult to separate this group. For the purposes of identifying growth drivers for this study, this group is considered as one as it is dominated by and dependant on the seasonal resident. ). Retirees is used to describe those people retiring to take up primary residence in Muskoka, be it in a cottage, condominium unit or other housing form. Evidence suggests these transient tourists and seasonal residents are drawn primarily from the Greater Golden Horseshoe and from the Ottawa, Kingston, London and Windsor metropolitan areas, and that they are especially drawn 13 Statistics Canada s Travel Surveys do not distinguish between owners or rental users of private accommodation. Malone Given Parsons Ltd. * Centre for Spatial Economics 46
from among people over the age of 45. The District s Second Home Study (2004) also identifies these age groups and these locations as the primary sources of Muskoka s seasonal residents. Statistics Canada survey data regarding household spending by age identifies people 45 and over as the group spending most of the dollars on travel and related items. Figure 5.5: Tourist Definitions Ministry of Tourism "Tourists" or "visitors" are people travelling more than 40km (one way)* from home to take a day or overnight trip for the purposes of: - pleasure, using owned or rented seasonal accommodation - pleasure, using commercial accommodation; - visiting friends and relatives; - business. * from within Ontario. Economic Strategy seasonal residents transient tourists Source: Malone Given Parsons Ltd., C4SE, Statistics Canada Travel Surveys National tourism data suggest that travel spending between 1986 and 2006 grew at an average annual rate of 3.3 percent, faster than the 2.7 percent rate for the economy as a whole. Over the last ten years the comparable rates were 3.8 percent and 3.3 percent per year. Among the various travel categories the fastest growing components over the last decade were accommodation (4.9 percent per year), food and beverages (5.1 percent) and recreation and entertainment (6.7 percent) (see Figure 5.6). Most travel within and to Ontario is by residents of Ontario (75.2 percent of all trips or visits). This trend holds true for Muskoka where 93.7 percent of its visitors are from Ontario. The Ontario Ministry of Tourism forecasts rising numbers of visitors in both Ontario and Muskoka following several years of meagre growth and/or declines in the aftermath of 9-11, SARS and the rising value of the Canadian dollar. Muskoka is also noted for its attractiveness as a place for retirement. Retirees settling in the area are often former seasonal residents who visited the area regularly over the years then converted their seasonal residency status to permanent status upon retiring. Dollars spent by retirees and their dependents upon moving to a community have the same impact on the local economy as dollars spent by new employees and their dependents - both help to expand the community base. Malone Given Parsons Ltd. * Centre for Spatial Economics 47
Figure 5.6: Tourism Spending in Canada, Selected Components 1986-2006 3,000 Accommodation Food, beverages Recreation, entertainment 2,500 2,000 1,500 1,000 500 0 1986 1987 1988 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 Source: Centre for Spatial Economics, based on Ministry of Tourism and Recreation CTS/ITS data. Note: Millions of constant 1997 dollars; quarterly data at seasonally adjusted annual rates. Retirees and their dependents spend their incomes on food, clothing, gasoline, personal services, entertainment and recreation; however, their incomes and service needs may differ from new employees and their dependents. 14 It is next to impossible to consistently measure the separate impacts over the years of spending by transient tourists, seasonal residents and retirees on economic development in Muskoka. We know that together their spending supports in excess of 4,600 of the more than 8,000 jobs in the District s economic base in 2001. We also know that transient tourists, seasonal residents and retirees are largely drawn from the same age groups and from the same parts of Ontario. From this point forward we refer to these 4,600 jobs as being supported by transient tourism, seasonal residents and retirees (contracted to TSR). We determine their potential growth pace into the future by tying them to the projected growth in the population 45 years of age and over in the major metropolitan centres of southern Ontario (see Figure 5.7). 14 Some people approaching their retirement years relocate to Muskoka on a permanent basis before they retire, but continue to work by commuting to positions in Barrie and York, by accepting positions in Muskoka (thus adding to employed by place of residence) or by working in some capacity from their homes (thus adding to employed by place of residence, and perhaps to Muskoka s economic base). Malone Given Parsons Ltd. * Centre for Spatial Economics 48
Figure 5.7: Population of Persons 45 and Over and 65 and Over in the Greater Golden Horseshoe, Ottawa, Kingston, London and Windsor 7,000,000 Persons 45-64 Persons 65+ 6,000,000 5,000,000 4,000,000 3,000,000 2,000,000 1,000,000 Source: Statistics Canada and C4SE 0 1986 1991 1996 2001 2006 2011 2016 2021 2026 2031 The population of this 45 and over age group is expected to grow at an average annual rate of 2.0 percent between 2001 and 2031 15, with rates this decade averaging more than 3.0 percent per year slowing in the final decade to rates of about 1.5 percent per year. For the purpose of projecting future employment growth, we have generated a range of economic and demographic projections for the District assuming that Muskoka s TSR employment base grows at the same annual rate as this population group, at a rate 0.5 percent per year faster and at a rate 0.5 percent per year slower. The impacts of these differing growth rate assumptions on Muskoka s TSR employment are illustrated in Figure 5.8. If TSR employment grows at the same rate as the population 45 and over in southern Ontario s metropolitan areas it will grow from just over 4,600 in 2001 to almost 9,000 in 2031. If TSR employment grows 0.5 percent per year faster than that population growth it will grow to more than 10,000 in 2031. If it grows 0.5 percent per year slower it will reach just over 7,800 in 2031. 15 Considering that the rate of growth in households among these people exceeds the rate of growth in population, and that per household real incomes among them are rising at average annual rates of 1.5 percent per year, the spending on tourism generated by this group will grow in the future at rates consistent with the above-noted 4 percent annual nation-wide rates achieved over the last decade. Malone Given Parsons Ltd. * Centre for Spatial Economics 49
Figure 5.8: Projected Growth in Muskoka s Transient Tourism, Seasonal Resident and Retiree Supported (TSR ) Employment Source: C4SE In applying the projection model described in Section 5.1 to Muskoka, we drive the in-migration of people under the age of 55 by the District s future labour requirements, as defined by the economic base growth projections. We drive the in-migration of people over the age of 55 in proportion to the population 55 and over in southern Ontario s major metropolitan areas, reflecting this group s role as the pool from which Muskoka retirees are drawn. We drive the out-migration of all people at all ages by the rates experienced in Muskoka, reflecting the fact that as the population of the area over 65 years of age increases many will leave for mobility and other health reasons. Total employment for Muskoka under three scenarios is illustrated in Figure 5.8. Total employment grows from 28,360 in 2006 to 39,300 in 2031 under the base case scenario. In the faster employment growth case, growth reaches 43,270 and the slower case growth reaches 35,750 by 2031. The permanent population for Muskoka associated with these three scenarios is illustrated in Figure 5.9. In the base case the District s population grows from almost 60,000 in 2006 to almost 82,500 in 2031. In the faster employment growth case population reaches 91,000. In the slower employment growth case population reaches 74,800. Malone Given Parsons Ltd. * Centre for Spatial Economics 50
Figure 5.9: Employment Projections for Muskoka District, to 2031 Figure 5.10: Permanent Population Projections for Muskoka, to 2031 Source: C4SE Malone Given Parsons Ltd. * Centre for Spatial Economics 51
It is important to note that there is a degree of choice and assumed success in implementing choices implicit in these projections. The base case scenario assumes that Muskoka collectively determines that it wants to grow at the rate supported by broader market conditions. It also assumes that the District is collectively able to put in place the programs and assets necessary to sustain that base case growth rate. The higher growth case assumes greater success in attracting people and businesses to Muskoka, the lower assumes lesser success, or implementation of a choice to grow at a lesser rate. Summary tables providing more information about employment, population by age, and households are provided in Appendix A. Malone Given Parsons Ltd. * Centre for Spatial Economics 52