February 7, 2013
Stronger manufacturing (particularly autos) should help drive Ontario into 2014
Midway through the first quarter of 2013, there is increasing evidence that Ontario’s economic pulse is starting to beat a little faster. This observation is based in large part on the fact that over the past six months total employment in the province has increased by 71,800, the strongest half-year job gain since mid 2011.
Across industries, most of this gain was in service-producing industries led by wholesale and retail sales, transportation, education, health and financial services.
Furthermore, since mid-2012, the private sector has added close to 90,000 new jobs.
In addition to the stronger pattern of job growth in the province, wholesale sales rebounded sharply in November following back-to-back declines in September and October. Also, consistent with the relatively strong pattern of job growth in the second half of 2012, consumer spending (reflected by the volume of retail sales over the past six months) has increased by 2% compared to a 1% rise over the comparable period in 2011.
Although, at first glance, the 4.4% year-to-date increase in business non-residential building appears relatively muted, a closer look reveals that over the first eleven months of the year industrial building increased by 31.6% compared to a decline of 4.2% over the comparable period in 2011.
The very strong gain industrial construction together with an 8.7% rise in commercial building more than offset a 13.3% year-to-date decline in institutional construction caused in large part by the efforts of the federal and provincial government to meet their deficit reduction targets.
In addition to the evidence of stronger domestic demand, the value of the province’s total exports has increased by 5.8% year-to-date, more than twice the 2% gain recorded in 2011.
This very solid gain, driven in large part by increased exports of transportation equipment to the U.S., clearly suggests the province’s external economic environment has improved, against the headwinds of a strong currency and the persisting fragile health of the global economy in general and the U.S. in particular.
Despite solid growth of employment, near record low interest rates and stronger consumer confidence, housing demand in the form of existing home sales has contracted by 6% since June and average house prices are down by 8.3% over the same period.
This weakening in housing demand appears to have been caused by the implementation of more restrictive mortgage lending regulations by the federal government in July of 2012. However, despite the slowdown in home sales, total housing starts in the second half of 2012 were 4.7% above the comparable period in 2011 and residential building permits over the same period were up by 18.2%.
Looking forward, although Europe’s economic health is extremely fragile, there are clear signs that the outlook for the United States, the market for 80% of Ontario’s exports, has materially improved over the past few months as has the outlook for Asia.
In addition, the increase in business confidence indicated by the Ontario Business Confidence Index, suggests that, despite lingering concerns, the above noted improvement in external demand will be reinforced by a stronger pattern of business investment and sustained growth of consumer spending causing the overall growth in the province to gradually accelerate over the next two years.
Data Sources: Statistics Canada, U.S. Federal Reserve Board/Chart: Reed Construction Data, CanaData.