Impact Regina August 2016
Economic Indicators August 2016 Executive Summary
Impact Regina
The Regina economy continues to grow at a modest pace despite a retrenchment in resource prices with most indicators, aside from new home construction, being positive: •
After a weak April, employment growth rebounded in May, June, and July pushing year to date employment up 0.9% over the same period last year.
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Year to date employment was up over the same period in 2015 in agriculture (100), resource extraction (400), wholesale and retail trade (3,000), finance, insurance, real estate and leasing (600), professional, scientific and technical services (1,100), healthcare (2,300), information, culture and recreation (1,200), and accommodation and food services (400).
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Year to date employment was down in utilities (-400), manufacturing (-400), transportation and warehousing (-2,100), business, building and other support services (-300), education services (-1,100), other services (-100), and public administration (-1,900). More troublesome was the 1,600 position drop in year to date construction employment, as new home construction activity declined.
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The average year to date unemployment rate remains low at 5.3%, but higher than 2015 levels.
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Total housing starts are down so far in 2016 over the first 6 months of 2015. While single, semi-detached, and row housing starts are up so far in 2016 (36.6%, 42.3%, and 29.6%, respectively), a sharp drop in apartment/ condo construction (-73.6%) has driven total year-to-date housing starts down by 28%. It should be noted, however, that 2015 apartment/condo starts include the Capital Point condominium project, with 144 units.
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Year to date residential building permits (a leading indicator of housing starts) are up 22.7% over the first 6 months of 2015, pushing total year to date permits up by 5.8% and suggesting a resurgence in residential activity in the remainder of the year.
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With low inflation, interest rates are not expected to increase through much of 2016.
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2015 population was up 1.9 % over 2014 on the strength of international and intraprovincial migration. This can be expected to continue through 2016 with continued employment growth spurring continued in-migration. On average, between July 1, 2014 and June 30, 2015, Canada’s census metropolitan areas (CMAs) grew by 1.2 per cent.
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The Conference Board of Canada forecasts Regina’s economy to post a 1.1 per cent real GDP gain in 2016, following a 0.3 percent dip in 2015, the first drop since 1995.
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Economic Indicators August 2016 Month to Month
Employment Unemployment Rate (%)
Consumer Price Index (2002=100) Housing Starts Total (Units) Building Permits Total ($000s)
Gross Domestic Product (2007 $M)
July 2015
July 2016
138,900
141,200
2,300
4.3
5.5
1.2
June 2015
June 2016
132.4
134.2
1.8
300
170
37,564
121,694
2014
2015
236,995
241,422
2015
2016f
% Chg
Chg
% Chg
July 2015
July 2016
1.7%
136,957
138,214
1,257
0.9%
27.9%
4.5
5.3
0.9
19.5%
June 2015
June 2016
1.4%
131.0
132.8
1.8
1.4%
-130
-43.3%
815
587
-228
-28.0%
84,130
224.0%
328,260
347,343
19,083
5.8%
4,427
1.9%
Negative Trend Positive Trend
14,075
14,235
160
1.1%
No Significant Change
Sources: Statistics Canada Cansim 2820128, 0270034, 326-0020, 0260003, 0510056, and Conference Board of Canada Metropolitan Outlook Autumn 2015. Note: All data presented above is raw/not seasonally adjusted.
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Impact Regina
Population (persons) July 1
Chg
Year to Date
Special Report Regina New Housing Market New housing starts are a powerful indicator of a region’s economic health. This one piece of data has a powerful multiplier effect through the economy and is typically used to derive estimates for other consumer-based indicators; people buying new homes tend to spend money on other consumer goods such as furniture, lawn and garden supplies, and home appliances. As a rule, home builders usually don’t start a house unless they are fairly confident it will sell upon or before its completion. The rate of change in housing starts provides further information about in-migration, household formation, demand for homes, and the outlook for the construction industry. Trends in the housing starts data carry valuable insights into the financial health of homebuilders, mortgage lenders, and home furnishings companies. Commodity prices such as lumber are also very sensitive to housing industry trends.
Historical Housing Starts Regina Housing starts, although exhibiting substantial month to month variability, reached a single month peak of 643 units in November 1975 and a monthly low of 4 units in February 1991. Recently, starts peaked again at 390 units in August 2013.
Impact Regina
On an annual basis, starts reached 3497 units in 1977, bottomed out at 189 units in 1991, and peaked again at 3,093 units in 2012 and 3,122 units in 2013.
Source: Cansim Table 027-0048
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2016 Year to date Total housing starts are down so far, year-to-date in 2016 over the first 6 months of 2015. While single, semi-detached, and row housing starts are up so far in 2016 (36.6%, 42.3%, and 29.6% respectively), a sharp drop in apartment/condo construction (-73.6%) has driven total year-to-date housing starts down by 28%. It should be noted, however, that 2015 apartment/condo starts included the Capital Point condominium project, ultimately slated to contain 144 units. June 2015
June 2016
Chg
%Chg
June 2015 ytd
June 2016 ytd
Chg
%Chg
Housing Starts Single (Units)
58
90
32
55.2%
232
317
85
36.6%
Housing Starts Semi-detached (Units)
6
10
4
66.7%
52
74
22
42.3%
Housing Starts Row (Units)
21
26
5
23.8%
54
70
16
29.6%
Housing Starts Apartment and other types (Units)
215
44
-171
-79.5%
477
126
-351
-73.6%
Housing Starts Total (Units)
300
170
-130
-43.3%
815
587
-228
-28.0%
Source: Cansim Table 027-0034
Building Permit Data A leading indicator is a measurable economic factor that changes before the economy starts to follow a particular pattern or trend. Building permit data is widely used as a leading indicator for the construction industry since the issuance of a building permit is one of the first steps in the construction process. Statistics Canada’s monthly Building Permits Survey collects data on the value of permits issued by Canadian municipalities for both residential and non-residential buildings, and the number of residential dwellings authorized.
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Impact Regina
While permits are recorded in the month issued, a housing start is not recorded until the beginning of construction on a building, usually when the concrete has been poured for the whole of the structure’s footing, or an equivalent stage where a basement will not be part of the structure. As such, a permit will precede start by a period of time influenced by a number of factors including, but not limited to weather, labour and material availability, infrastructure readiness, and financing.
The role of building permits as a leading indicator of housing starts is clearer when examining activity since 2005. Typically, a surge in starts follow a surge in residential permits 3 to 7 months later.
Source: Cansim Tables 027-0034 and 026-0003
With 2016 year to date residential permits almost 25% ahead of 2015 with a strong surge in May, it is reasonable to project a surge in residential starts in in the final 2 quarters of 2016.
Impact Regina
Market Forecast Canada Mortgage and Housing Corporation (CMHC) provides a detailed forecast for new home construction in the Regina CMA for 2016 and 2017. The latest forecast was released in spring 2016. CMHC noted that after declining 28 per cent to 1,597 units in 2015, total housing starts in the Regina CMA are forecast to range from 1,180 to 1,470 units in 2016 and from 1,240 to 1,530 units in 2017. Simple multiplication by two of actual starts in the first 6 months of 2016 yields starts of almost 1200, closely matching the lower bound of the 2016 forecast. CMHC also notes that economic activity in Regina has been weakened by low global prices for oil, potash and uranium in addition to the loss of energy-related government revenues. All of this has combined to slow capital investments and employment growth in the local economy. With employment growth moderating, net migration to the region is expected to decline, contributing to the decline in demand for new housing units in Regina. Also contributing to weakness in starts is the overhanging inventory of completed and unsold units. An improving economy and continued depletion of inventory are expected to lead to a modest increase in housing starts to between 1,240 to 1,530 units in 2017.
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The Conference Board of Canada (CBOC) in its Winter 2016 Metropolitan Outlook, forecasts starts to be 1,360 in 2016 and declining to 1,259 in 2017. CBOC indicates that Regina’s real economic growth has been hampered by falling prices for natural resources. Total output declined 0.3 per cent in 2015, the first drop since 1995, and well below the 3.7 per cent pace of 2014, dampening new housing construction. CBOC does not project a large drop in 2016 net migration and net migration is a key component in determining housing starts. However, unsold inventory of new homes continues to stifle new home construction.
Source: Cansim Tables 027-0034 and 051-0057
Implications for Business The new home market is commonly seen as one of the first sectors to rise or fall when economic conditions improve or worsen, and housing permits can be early indicators of activity in the new home market. In addition, every time a new home is started, construction employment rises, with a corresponding rise in construction employee income and consumer spending. When a new home is sold, it generates revenues for the home builder, real estate agent, lender, lawyer, and a further round of spending for the buyer. A new home buyer will likely purchase items such as major appliances (refrigerators, washers and dryers, etc.), furniture, and landscaping, all of which represent significant opportunities for local retailers and service industries. Although starts were weak in the first half of 2016, the recent small increase in absorption (and corresponding slight easing of inventories) in tandem with the current surge in residential permits, point to a somewhat more positive second half of 2016 and 2017 than forecast.
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Impact Regina
Unsold new home inventory peaked at 194 units in October but has declined to 119 in June 2016. Declines in unsold stock (while not nearly at the 2007 and 2008 levels), a modest uptick in absorption, and the recent surge in residential permits point to perhaps a more robust second half of 2016 and 2017 than forecast.
About EDR Economic Development Regina Inc. (EDR) is the economic development agency for the City of Regina and region. EDR provides leadership to the community to support industry growth and diversification through retention and expansion of existing business and encouraging investment, development of industry and tourism with focus on the key-growth sectors of the economy in the Region. In collaboration with key stakeholders, we work to identify, develop and promote opportunities that advance economic prosperity for those who live, work, learn, visit and invest in the Regina region and ensure the Regina region offers a vibrant and diversified economy for investors, is a positive destination experience for visitors and offers a high quality of life for residents. www.economicdevelopmentregina.com
About Praxis Consulting Praxis consulting is Saskatchewan’s largest locally-based management consulting firm. Praxis works collaboratively with clients in the facilitation of growth and excellence, leveraging an unmatched wealth of experience across multiple sectors. Praxis strives to: •
Inform clients with market research and economic impact studies, providing relevant insights into various sectors and communities.
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Strategize, developing custom solutions tailored to clients’ most unique and complex needs.
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Execute strategic plans, portfolios and projects by facilitating internal project management, change management and communication capacity.
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