Economic Update and Outlook NAIOP Vancouver Chapter Breakfast Seminar Thursday, November 18, 2010 Helmut Pastrick Chief Economist Central 1 Credit Union
Outline: Global and U.S. economies Canadian economy and forecasts B.C. and Vancouver economic conditions and trends Forecast and summary
Large job losses during recession, private sector begins hiring in 2010 Persons - thousands 500 Change in Payroll Employment, U.S. 0-500 Total Private -1000 Jan-07 Jan-08 Jan-09 Jan-10 Source: U.S. Bureau of Labor Statistics. Latest: Oct-10
High unemployment, excess labour supply Per cent of civilian labor force 20 U.S. Unemployment Rates 15 10 Total Offical 5 0 Jan-94 Jan-98 Jan-02 Jan-06 Jan-10 Source: U.S. Bureau of Labor Statistics. Latest: Oct-10
U.S. headed for deflation? 5 4 U.S. Inflation Measures Percentage change year-over-year 3 2 1 Core PPI Core CPI 0-1 Jan-00 Jan-02 Jan-04 Jan-06 Jan-08 Jan-10 Source: U.S. Dept. of Labor: Bureau of Labor Statistics. Latest: Oct-10
Large expansion in monetary base - inflationary threat? Dollars - trillions 2.5 2.0 U.S. Monetary Base and Excess Reserves 1.5 1.0 Base Reserves 0.5 0.0 Jan-07 Jan-08 Jan-09 Jan-10 Source: U.S. Federal Reserve. Latest: Oct-10
High government debt level poses future risks to bond yields, currency U.S. Federal Government Total Public Debt Dollars - trillions 14 12 10 8 6 4 Per cent of GDP 100 90 80 70 60 Debt (L) Ratio (R) 2 Q1-90 Q1-94 Q1-98 Q1-02 Q1-06 Q1-10 Source: U.S. Federal Reserve. Latest: Q2-10 50
Large China surpluses, little movement in exchange rate 0.25 0.20 0.15 0.10 0.05 USD per China Yuan 0.00 Jan-00 Jan-03 Jan-06 Jan-09 China Current Account Balance, Bil. USD 500 400 300 200 100 0 2000 2003 2006 2009 140 130 120 110 100 USD Broad Index 1997=100 90 Jan-00 Jan-03 Jan-06 Jan-09 US Balance on Current Account, Billions -50-100 -150-200 -250 Q1-00 Q1-03 Q1-06 Q1-09 Source: US Federal Reserve, IMF.
U.S. households in poor financial condition; rebuilding balance sheet Per cent of disposable personal income 700 Net Worth 140 Debt Per cent of disposable personal income 130 600 120 110 500 100 90 400 Q1-00 Q1-03 Q1-06 Q1-09 Source: U.S. Federal Reserve. 80 Q1-00 Q1-03 Q1-06 Q1-09 Latest: Q2-10
U.S. personal income edging upward Dollars - trillions 13.0 12.5 12.0 11.5 11.0 10.5 Total Income Current $ 2005 $ 10.0 Jan-05 Jul-07 Jan-10 Source: U.S. Federal Reserve. Latest: Sep-10 Dollars - trillions 11.0 10.5 10.0 9.5 9.0 Private Income Current $ 2005 $ 8.5 Jan-05 Jul-07 Jan-10 Note: Seasonally adjusted at annual rate
Upshift in U.S. personal savings rate, consumption gradually expanding Dollars - trillions saar 11 10 9 Consumption Current $ 2005 $ 8 Jan-05 Jan-07 Jan-09 Source: U.S. Federal Reserve. Percent of disposable personal income 10 8 6 4 2 Savings Rate 0 Jan-05 Jan-07 Jan-09 Latest: Sep-10
Profitability returns to U.S. corporations Dollars - billions 1,800 1,600 1,400 1,200 1,000 U.S. Corporate Profits Before Tax 800 Q1-04 Q1-06 Q1-08 Q1-10 Source: U.S. BEA. Note: Seasonally adjusted at annual rate Latest: Q2-10
Credit availability beginning to ease but remains tight Per cent 100 80 60 40 20 0-20 Net Percentage of U.S. Banks Tightening Standards for Commercial & Industrial Loans Large & medium Small -40 Q1-04 Q1-06 Q1-08 Q1-10 Source: U.S. Federal Reserve Board. Latest: Q4-10
Indicators point to slowdown, not recession in near term U.S. Weekly Leading Index U.S. Risk of Recession 1992=100 150 140 130 120 110 100 5-Jan-07 8-Aug-08 12-Mar-10 Source: ECRI. Latest: 5-Nov-10 Per cent 70 60 50 40 30 20 10 0 Jan-97 Feb-01 Mar-05 Apr-09 Source: Moody's Economy.com. Sep-10
Economic growth slowdown ends in 2010 8 U.S. Economic Performance and Forecast to Q2-2011 Percentage change at annual rate in real GDP 4 0 High Median Low -4 forecast -8 Q1-07 Q1-08 Q1-09 Q1-10 Q1-11 Source: U.S. BEA, WSJ November 2010 Survey. Latest actual: Q3-10
U.S. economy seen growing above 3% in 2012 and 2013 Percentage change at annual rate in real GDP 6 4 2 0 U.S. Economic Performance and Forecast to 2015-2 -4 forecast 90 95 00 05 10 15 Source: U.S. BEA, Consensus Forecasts October 2010. Latest actual: 2009
High economic growth rates in Asia, excluding Japan Economic Performance and Forecast, Selected Asian Economies Percentage change in real GDP 20 15 10 5 0 China N.I. Asia Japan -5-10 forecast 00 02 04 06 08 10 12 Source: IMF WEO October 2010. Latest actual: 2009
Canada's labour market recovers, hours worked held down by part-time employment Persons - millions 17.3 17.2 17.1 17.0 16.9 16.8 16.7 Total Employment, Canada 16.6 Jan-07 Jan-08 Jan-09 Jan-10 Source: Statistics Canada Hours - millions 585 580 575 570 565 560 555 Actual Hours Worked, Canada 550 Jan-07 Jan-08 Jan-09 Jan-10 Oct-10
Inflation rate below Bank of Canada's target 4 3 Canada's Inflation Measures Percentage change year-over-year 2 1 0 CPI Core CPI -1-2 Jan-07 Jan-08 Jan-09 Jan-10 Source: Statistics Canada. Latest: Sep-10
Slowdown forecast for rest of 2010, moderate growth in 2011 Percentage change at annual rate in real GDP 8 Canada's Economic Performance and Forecasts 4 0 Consensus BoC C1CU -4 forecast -8 Q1-07 Q1-08 Q1-09 Q1-10 Q1-11 Q1-12 Source: Statistics Canada, Bank of Canada, Reuters, C1CU. Latest actual: Q2-10
Bank of Canada's pause ends in April, modestly higher rates to end of 2012 Interest Rate Forecasts, Quarterly Per cent 8 6 4 2 forecast 5y Mort Prime 5y GIC Target 0 Q1-07 Q1-08 Q1-09 Q1-10 Q1-11 Q1-12 Source: Bank of Canada, C1CU. Note: Averages. Latest actual: Q3-10
Higher Canadian dollar expected Exchange Rate Forecasts, Quarterly, Canada USD per CAD 1.10 1.00 0.90 0.80 forecast 0.70 Q1-07 Q1-08 Q1-09 Q1-10 Q1-11 Q1-12 C1CU BMO CIBC RBC Scotia TD Source: Bank of Canada, C1CU Survey. Latest actual: Q3-10
Employment growth pauses, unemployment edging down B.C. Labour Market, Monthly Persons - millions 2.34 2.32 2.30 2.28 2.26 2.24 2.22 Jan-07 Jan-08 Jan-09 Jan-10 Per cent 9 8 7 6 5 4 3 Employment (L) U. rate (R) Source: Statistics Canada. Note: Seasonally adjusted. Latest: Oct-10
Resurgence in Metro Vancouver employment, rest of B.C. slipping this year Employment Trends, Vancouver CMA and Rest of B.C. 2007=100 106 104 102 100 Vancouver Rest 98 96 Jan-07 Jan-08 Jan-09 Jan-10 Source: Statistics Canada, C1CU. Note: Seasonally adjusted. Latest: Oct-10
Moderate recovery in international goods exports Dollars - billions 3.5 B.C. International Merchandise Exports 3.0 2.5 Current $ 2002 $ 2.0 1.5 Jan-07 Jan-08 Jan-09 Jan-10 Source: Statistics Canada, C1CU. Note: Seasonally adjusted Latest: Sep-10
Geographic export diversification; growing export share to China, Korea, and others 30 25 B.C. Merchandise Export Shares to Pacific Rim Per cent of total 20 15 Japan Rest of Pacific Rim 10 5 92 95 98 01 04 07 10* Source: Statistics Canada, BC Stats. *Jan-Sep 2010
Olympic spike, return to prior levels Persons - thousands 425 400 375 350 325 B.C. International Tourist Entries 300 Jan-07 Jan-08 Jan-09 Jan-10 Source: Statistics Canada. Note: Seasonally adjusted Latest: Aug-10
Retail sales spending flat in 2010 Dollars - billions 5.2 5.0 B.C. Retail Sales 4.8 4.6 4.4 Current $ 2002 $ 4.2 4.0 Jan-07 Jan-08 Jan-09 Jan-10 Source: Statistics Canada, C1CU. Note: Seasonally adjusted. Latest: Aug-10
Office employment climbing Persons - thousands 370 360 Office Employment Proxy, Lower Mainland 350 340 Actual Trend 330 320 Jan-07 Jan-08 Jan-09 Jan-10 Source: Statistics Canada, C1CU. Latest: Sep-10 Note: Finance, insurance, real estate, professional, scientific, technical, management, administration, support, government.
Trade employment turns up Retail and Wholesale Trade Employment, Lower Mainland Persons - thousands 240 230 220 Actual Trend 210 200 Jan-07 Jan-08 Jan-09 Jan-10 Source: Statistics Canada, C1CU. Latest: Sep-10
New business formations sliding lower this year Number 2,400 2,100 1,800 1,500 1,200 900 Business Incorporations, Lower Mainland 600 Jan-07 Jan-08 Jan-09 Jan-10 Source: BC Ministry of Finance. Note: Seasonally adjusted Latest: Jul-10
Declining business bankruptcies Number 60 50 Business Bankrupcies, B.C. 40 30 20 Actual Trend 10 0 Jan-07 Jan-08 Jan-09 Jan-10 Source: OSB Canada, Statistics Canada. Latest: Aug-10
Metro Vancouver: investment spending at low levels Dollars - millions 800 700 600 500 400 300 Commercial Construction Current $ 2002 $ 200 Q1-07 Q1-08 Q1-09 Q1-10 Source: Statistics Canada. Latest: Q3-10 Dollars - millions 70 60 50 40 30 20 Industrial Construction Current $ 2002 $ 10 Q1-07 Q1-08 Q1-09 Q1-10 Note: Seasonally adjusted
Population growth held up during recession Percent change at annual rate 2.0 B.C. Population Growth Rate, Quarterly 1.5 1.0 0.5 0.0 Q1-02 Q1-04 Q1-06 Q1-08 Q1-10 Source: Statistics Canada, C1CU. Latest Q2-10
Interprovincial migration remains positive 20 15 Net Migration by Type, Quarterly, B.C. Persons - thousands 10 5 Net international Net interprovincial 0-5 Q1-02 Q1-04 Q1-06 Q1-08 Q1-10 Source: Statistics Canada, C1CU. Note: Seasonally adjusted. Latest: Q2-10
Housing sales up last three months MLS Residential Sales, Lower Mainland Units - thousands 7 6 5 4 3 2 1 0 Jan-07 Jan-08 Jan-09 Jan-10 Actual Seas. adj. Source: CREA, C1CU. Latest: Oct-10
Housing prices turning higher 2001=100 250 240 230 220 210 MLS Housing Price Index, Lower Mainland 200 Jan-07 Jan-08 Jan-09 Jan-10 Source: REBGV, C1CU. Note: Based on seasonally adjusted price. Latest: Oct-10
Ratio at record highs -- bubble trouble? Ratio Housing Price - Income Ratio, Lower Mainland 7 6 5 4 3 2 1 80 90 00 10 Source: Statistics Canada, CREA, C1CU.
Speculation not a significant force in current market, unlike in 1981 and 1989 A Speculation Measure: Holding Period of Sales, Lower Mainland Per cent of total 20 15 3-months or less 1-month or less 10 5 0 Jan-80 Jan-85 Jan-90 Jan-95 Jan-00 Jan-05 Jan-10 Source: Landcor Data Corp. Based on market transactions. Latest: Sep-10
Moderate growth in 2011 Indicator 2009 2010f 2011f Real GDP, % change -1.8 3.1 2.5 Nominal GDP, % change -3.4 6.4 5.6 Personal income, % change -0.1 5.7 4.9 Employment, % change -2.4 2.0 2.0 Unemployment rate, % 7.6 7.5 7.3 Corporate profits, % change -21.3 17.0 6.0 Source: Statistics Canada, C1CU forecast. B.C. Economic Outlook
Housing sales rebound in 2011 B.C. Economic Outlook Indicator 2009 2010f 2011f Population growth, % change 1.7 1.6 1.5 CPI, % change 0.0 0.9 1.5 Retail sales, % change -4.4 4.3 5.3 Housing sales, % change 23.4-11.0 10.0 Housing prices, % change 2.4 8.0 6.0 Housing starts, % change -53.1 60.0 6.0 Source: Statistics Canada, CREA, CMHC, C1CU forecast.