A B.C. Growth Revival and What it Means for the Southern InteriorSouthern Interior Local Government AssociationPenticton, B.C.April 30, 2014

Bryan YuRegional EconomistCentral 1 Credit Union

Global economy still limping along, growth accelerates in recent months

30

35

40

45

50

55

60

Index

Source: Bloomberg, C1CU

JP Morgan Global Manufacturing PMI

Contraction

Expansion

U.S. growth a subdued 1.9% in 2013 but strong hand-off to 2014

-10.0

-8.0

-6.0

-4.0

-2.0

0.0

2.0

4.0

6.0

GDP FSDP

Per cent change at annual rate

Source: U.S. Bureau of Economic Analysis Latest : Q4-13

U.S. Economic Growth Housing market recovering Credit constraints ease Consumer Deleveraging

cycle Business spending

strengthens on underlying demand

Shale revolution Interest rates remain low Lower fiscal drag on

bipartisan budget deal

Labour market conditions improve, but weakness persists

02 04 06 08 10 12 140

2

4

6

8

10

12

60

61

62

63

64

65

66

67

68

Unemployment Rate (L)

Participation Rate ( R)

Source: U.S. BLS, BEA

02 04 06 08 10 12 14124000

126000

128000

130000

132000

134000

136000

138000

140000

-1000

-800

-600

-400

-200

0

200

400

600

Change (R)

Total (L)

Persons (mil.) Per Cent

U.S. Payroll Employment Labour Market Tightness

Persons (000s) Per Cent

Key consumer spending sectors reviving

2005 38991396304026940909140,000

145,000

150,000

155,000

160,000

165,000

170,000

175,000

180,000

185,000

190,000

Source: U.S. BEA. Note: Seasonally adjusted at annual rate. Latest: Nov-13

2005 2007 2009 2011 20138

10

12

14

16

18

20

22Units - millions $ (bil)

U.S. New Vehicle Sales U.S. Real Retail Sales

Housing market recovering

2000 2003 2006 2009 201240

50

60

70

80

90

100

110

120

NAR MedianC-S HPI

Source: Federal Reserve, Central 1 Credit Union, seasonally adjusted price.

4

5

6

7

8

9

10

11

12Per Cent Index (2005=100)

Rental Vacancy Rates U.S. Home Prices

$205k

Housing starts rebalancing after decade of overbuilding

1991 343043537036434375003856539630406950

500

1,000

1,500

2,000

2,500

Avg HH formationHousing Starts

Source: Federal Reserve, C1CU

Income and Net Worth Recovering

30,000,000.0

40,000,000.0

50,000,000.0

60,000,000.0

70,000,000.0

80,000,000.0

90,000,000.0

Source: U.S. BLS, BEA

-2

-1

0

1

2

3

4

5

6

7Per Cent $ T

Real PDI Growth Household Net Worth

Largest output gap in 60 years and housing starts lowest in more than 50 years

1949Q11960Q21971Q31982Q41994Q12005Q2-10

-8

-6

-4

-2

0

2

4

6

8

U.S. Output Gap (per cent of GDP)

Source: U.S. BEA, US Census Bureau, CBO. Latest: Q4-13

0

2

4

6

8

10

12

U.S. Starts Per Capita

Key External Economic ForecastsIndicator 2013 2014 2015 2016 2017

U.S. real GDP, % chg. 1.9 2.8 3.2 3.4 3.3

U.S. housing starts, % chg. 18.7 20.4 23.2 8.7 5.0

Japan GDP, % chg. 1.9 1.5 1.3 1.2 1.4

China GDP, % chg. 7.7 7.3 7.3 7.3 7.0

EU GDP, % -0.4 0.7 1.0 1.3 1.5

Canada real GDP, % chg. 2.0 2.3 2.6 3.1 3.0Source: U.S. BEA, Statistics Canada, Consensus Forecasts, C1CU.

U.S. cyclical recovery to gain momentum, Canadian economy lags

Canadian inflation near 1%, consistent with BoC expectations but still below target

2000 2002 2004 2006 2008 2010 2012 2014-2

-1

0

1

2

3

4

5

6

CPI Inflation

Core CPI In-flation

Year-over-vear per cent change

Source: S tat is t ics Canada, C1CU.

CPI Price Inflation

BoC begins raising rates in mid 2015

0

2

4

6

8

10

LT GoC Bond

3-mo. T-bill

Per cent

Source: Bank of Canada, C1 Economics. Note: Annual average. Latest actual: 2013.

Interest Rates, Actual and Forecast 2013-2018: Canada

Decline in Canadian Dollar to lift competitiveness and exports

2010-01-012011-02-142012-03-272013-05-080.85

0.90

0.95

1.00

1.05

1.10

CDN in USD

Source: S tat is t ics Canada, C1CU. Average weekly data Latest actua l : Feb 12 /14

Daily Exchange Rate

2011 2012 2013 2014 2015 2016 2017 20180.85

0.90

0.95

1.00

1.05

1.10

Exchange Rate OutlookCDN in USD

Transition year for B.C. economy in 2014 and gains in 2015 onwards

-6

-4

-2

0

2

4

6

8

10

NominalReal

Per cent change in GDP

Source: Statistics Canada, C1CU. Latest actual: 2011. Forecast: 2014 - 2017.

B.C. Economic Growth, Actual and Forecast

B.C. Economic and Housing ForecastsIndicator 2013 2014 2015 2016 2017

Real GDP, % chg. 1.4 2.4 2.9 3.9 5.1

Nominal GDP, % chg. 2.0 3.9 5.4 5.9 7.7

Employment, % chg. -0.2 1.3 1.7 2.1 2.6

Unemployment rate, % 6.6 6.4 5.8 5.7 4.7

Population, % chg. 0.9 0.9 1.0 1.1 1.3

Housing starts, (000s) 27.1 27.3 29.9 29.9 30.5Source: Statistics Canada, CMHC, C1CU.

Transition year for B.C. economy, economic momentum picks up in 2015 onwards

Labour market performance dismal year in 2013 but signaling modest improvement

2,220.00

2,240.00

2,260.00

2,280.00

2,300.00

2,320.00

2,340.00Persons - millions

Source: Statistics Canada, C1CU. Latest: Mar-14

B.C. Employment

AWE

Hours Worked

Part-time

Full-time

Total EMP

-3 -2 -1 0 1 2 3

2013 Growth Performance

Population growth sluggish as residents flow to Prairies

-20

-10

0

10

20

30

40

50

60

SOURCE Statistics Canada Central 1 Credit Union)

0.50

0.75

1.00

1.25

1.50

Per CentPersons (000s)

Population GrowthMigration Flows

Housing will not be a growth driver for economy

-15

-10

-5

0

5

10

15

20

SOURCE CMHC, Statistics Canada Central 1 Credit Union

0

5

10

15

20

25

30

35

40

45

Units (000s)Percentage change

Housing Starts Real Residential Investment

Exports cycling higher in 2014 with broad gains across sectors

1,500.0

1,800.0

2,100.0

2,400.0

2,700.0

3,000.0

3,300.0

Current $ 2002 $

Dollars - billions

Source: Statistics Canada, C1CU. Note: Seasonally adjusted. Latest: Feb-14

B.C. International Merchandise Exports

Growth (%) 2012-13 YTD 2014

Total Exports 6.4 10.5

Excluding Forestry 2.1 9.9

Forestry 15.3 11.7

Agriculture 7.0 12.1

Energy -1.7 17.6

Metal ores/ minerals 13.1 27.0

Export growth to outpace import gains until 2017

-8

-6

-4

-2

0

2

4

6

8

10

Ex-ports

Per Cent

Source: Statistics Canada, C1CU.

0

20

40

60

80

100

46.3

12.1

19.8

5.4

Proportion of International Goods Exports 2013

U.S.

Japan

China

S. Korea

Other

‘97-’07

64%.

14%

3%

3%

15%

B.C. forestry sector in recovery mode on higher demand and prices

2000 Apr-02Jul-04 Oct-06 2009 Apr-11Jul-13100

200

300

400

500

SOURCE: B.C. Stats, Random Lengths Central 1 Credit Union (updated Feb 2014)

2005 2007 2009 2011 20130

40

80

120

160

200

Lumber Production (Quantity)

Lumber Exports (Quantity)

Lumber Exports (Dollar-Volume)

Index (2010=100) $/1000 bd ft

Lumber Activity Lumber Price

Exchange rate sensitive sectors to experience boost

2002 2004 2006 2008 2010 20120

200,000

400,000

600,000

800,000

1,000,000

1,200,000

1,400,000

SOURCE Statistics Canada Central 1 Credit Union)

2002 2004 2006 2008 2010 201250

55

60

65

70

75

Per CentPersons (000s)

Hotel Occupancy RateCanada-US Auto Flows

Got Gas? High growth contingent on LNG

Investment and Exports to lead economic growth

Con Gov Res Inv Non-Res Inv Exports-10.0

-5.0

0.0

5.0

10.0

15.0

20.0

25.0

30.0

Per cent change

Source: Statistics Canada, C1CU. Latest actual: 2012. Forecast: 2014 - 2018.

Growth by Expenditure Account 2012-2018

Employment trending higher in Thompson-Okanagan but still trends weak

230.0

240.0

250.0

260.0

270.0

monthly, s.a. Annual average

Persons – thousands

Source: Statistics Canada, 2013 YTD

Thompson-Okanagan Employment

Region

THOK -2.9%

Kelowna CMA -2.4%

Kamloops CA -4.8%

Annual Growth 2013/12

Population flat since 2009

2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013450000

460000

470000

480000

490000

500000

510000

520000

530000

540000

-1

0

1

2

3% change (right) Population (left)

Persons – thousands Per cent

Source: Statistics Canada. Note: As of July 1, latest data preliminary.

Thompson-Okanagan Population

Positive gains in Kelowna CMA, net outflow in other areas

Source: BC Stats, C1CU. Latest: 2013

2012-2013 Growth

Central Okanagan

Columbia-Shuswap

North Okanagan

Okanagan-Similkameen

Thompson-Nicola

Thompson/Okanagan

-2.0 -1.5 -1.0 -0.5 0.0 0.5 1.0

Interprovincial migration by age group

-1500

-1000

-500

0

500

1000

1500

20000-14

15-24

25-44

45-64

65+

SOURCE Statistics Canada Central 1 Credit Union

Persons

Migration Flows

Intraprovincial migration by age group

-500

0

500

1000

1500

20000-14

15-24

25-44

45-64

65+

SOURCE Statistics Canada Central 1 Credit Union

Persons

Migration Flows

Home sales accelerate in 2013 but stay low

SOURCE: Landcor, Latest: 2013, resale properties * includes rural – updated Feb/14

0

2,000

4,000

6,000

8,000

10,000

12,000

14,000

16,000

18,000

UnitsAnnual Sales*

Central OK

Columbia-Shus

North OK

OK-Simil

Thomps-Nic

Thompson- Okanagan

0 2 4 6 8 10 12 14 16 18

Annual 2013 Growth (%)

Home prices level in 2013

0

50

100

150

200

250Cen. Okan

Col. Shus.

Nor. Okan.

Okan. Sim.

Thomp. Nic.

Index 2005=100

Source: Landcor, Central 1 Credit Union

$357.7

2013 ’09 -’13

0%

$274.9 -2%

$290.0 -2%

$270.0 -5%

$357.7 8%

Housing market oversupply persists, excesses unwind

2002 2004 2006 2008 2010 2012 20140

5

10

15

20

25

30

35

40

45

CDN in USD

Source: S tat is t ics Canada, C1CU. Average weekly data Latest actua l : Feb 12 /14

MLS® sales-to-active listings ratios

2002 2004 2006 2008 2010 2012 20140

100

200

300

400

500

600

700

800

Kelowna

Kamloops

Vernon

Unabsorbed new home inventory2002=100

Thompson-Okanagan building permit activity

0

200,000

400,000

600,000

800,000

1,000,000

1,200,000

1,400,000

$ (mil.)

Source: BC S tats . Latest : 2013

0

100,000

200,000

300,000

400,000

500,000

600,000

700,000

Non-Residential Permit VolumeResidential Permit Volume$ mil.

Municipal tax revenue growth slows since recession

2005 2006 2007 2008 2009 2010 2011 2012 20130

200,000,000

400,000,000

600,000,000

800,000,000

1,000,000,000

0

2

4

6

8% change (right) Revenue (left)

$ millions Per cent

Source: B.C. Ministry of Community, Sport and Cultural Development . Latest 2013

Thompson-Okanagan municipalities

THOK Q4 Major Project Capital Costs $ millionsConstruction Started Proposed

Total 16,449 6,402

COMMERCIAL 190 35

EDUCATIONAL SERVICES 120 46HEALTH CARE & SOCIAL ASSISTANCE 367 80

MINING 475 1,734

RESIDENTIAL 3,357 2,024

RESIDENTIAL MIXED USE 1,755 50

RESORT 5,788 170TRANSPORTATION & WAREHOUSING 1,190 155

UTILITIES 1,272 1,521

PUBLIC ADMINISTRATION 272Source:: Ministry of Jobs , Tourism and Skills training and Labour C1CU

Alberta swagger to boost regional activity

0.0

2.0

4.0

6.0

8.0

10.0

CalgaryEdmontonVancouver

Per Cent

Source: Statistics Canada. Note: Seasonally adjusted. Latest: 2013

Unemployment Rate

B.C.

Alberta

Saskatchewan

Canada

0.0 1.0 2.0 3.0 4.0 5.0 6.0

2012

2013

Weekly earnings growth (%)

Calgary

Edmonton

Major Metros

0.0 1.0 2.0 3.0 4.0 5.0 6.0

Housing Price Growth(%)

Okanagan housing market more favourable with lower Canadian dollar and rising U.S. prices

1999 2001 2003 2005 2007 2009 2011 2013-200,000

-100,000

0

100,000

200,000

300,000

$CDN

Source: Landcor, NAR, S tat is t ics Canada, Centra l 1 Cred i t Un ion. Latest : Dec-13

U.S. West – Thompson Okanagan Price Differential

Exchange Rate Adjusted Price differential tilted in favour of U.S. from 2005-2011

Seniors share of local population high in a Okanagan market

Salmon ArmNorth Saanich

TrailWest Vancouver

ComoxPenticton

PeachlandSummerland

Oak BaySechelt

White RockCrestonSidney

ParksvilleQualicum Beach

BCCanada

0 5 10 15 20 25 30 35 40 45 50

24.225.125.125.525.825.927.127.527.828.429.4

33.136.937.1

47.215.6

14.8

Source: S tat is t ics Canada, NHS, 2011

Thompson –Okanagan Forecast (% change)2012 2013 2014 2015 2016

Labour Employed 0.8 -2.9 1.7 1.5 2.3Unemployment

Rate 6.9 7.1 7.5 7.1 6.8Population 0.2 -0.1 0.2 0.2 0.3Resale Housing

Transactions5.3 9.1 7.0 7.1 9.0

Med. Price 0.0 -0.6 0.0 1.0 2.0

Source:: Statistics Canada, Landcor, C1CU

Housing market improves but levels remain low

0

2000

4000

6000

8000

10000

12000

14000

16000

18000

0

50,000

100,000

150,000

200,000

250,000

300,000

350,000Sales Median price

Units– thousands $ - thousands

Source: Landcor. Note: 2014-16 forecast

KEY POINTS• B.C. economy in cyclical growth recovery led by external factors

• Consumer demand weighs on poor labour market performance and weak housing market growth

• Southern interior under additional weight of mid-decade housing and tourism bust, excess housing stock

• Goods exports and tourism exports in the region to improve over forecast period

• Housing oversupply alleviation, Alberta Swagger, retirees, and less incentive to buy U.S. property to drive local economy

THANK YOU

Bryan YuEconomistCentral 1 Credit Union

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