September 3, 2013

Jellybean row houses help establish “The Rock’s” growing prosperity

The rest of Canada is gradually coming around to a new mindset with respect to Newfoundland and Labrador.

Offshore oil riches, combined with a surge in mining activity, have dramatically altered the old image of the province as fisheries-dependent, with an accompanying high off-season unemployment rate.

The alteration is helped by a visit to “The Rock”. The sheltering harbour of St. John’s is a picturesque wonder, as are the brightly-coloured houses aligned side-by-side in what is known locally as jellybean-row style.

No one has ever said the islanders don’t know how to have a good time. Dip into the entertainment any evening along George Street, and it’s easy to identify the origin of many of Canada’s best musical and comedy talents.

At the same time, evidence of an increasing prosperity is easy to find. A starting point is home prices.

The Canadian Real Estate Association (CREA) says that the average price of an existing house sold in St. John’s in July of this year was $335,469.

That’s no longer far below the Canada-wide figure of $382,373 and it’s well ahead of the other major cities in the Atlantic Region. Halifax-Dartmouth is in second place ($275,046), followed by Fredericton ($178,883) and Saint John, N.B., ($169,592).

There are further interesting resale price comparisons. St. John’s now ranks ahead of Quebec City ($265,785), its chief rival for claim to oldest city in North America. It has also just surpassed Montreal ($329,339).

Skip across the country and St. John’s is not that far behind Edmonton ($345,335), while it does continue to trail the frontrunners: Calgary ($438,192); Toronto ($513,246); and “the whale”, Vancouver ($757,338).

In the new homes market, Statistics Canada’s latest housing price index (NHPI) records a year-over-year increase for St. John’s that is an exact match for the national rate, +1.8%.

Winnipeg led the country at +5.8%. Vancouver suffered the biggest setback, -0.9%.

There are other ways of looking at the province’s economy that offer a new perspective versus the old.

St. John’s current population (200,000) as a proportion of the province’s total (513,000) is about 40%, or close to Toronto’s relationship to Ontario.

Montreal relative to Quebec and Vancouver as a share of B.C. are both about 50%. Calgary and Edmonton each account for approximately one-third of Alberta’s total residents.

Urbanization has served the province well. In July of this year, St. John’s unemployment rate was only 6.0% seasonally adjusted and annualized (SAAR), eighth lowest among major urban centres in the nation.

Regina was number one at 3.5%. The Canada-wide figure was 7.2%.

The jobless rate throughout Newfoundland and Labrador was nearly double at 11.4%.

The prospects for new jobs in the province will continue to largely depend on resources, and that can create volatility. “Real” (i.e., inflation-adjusted) gross domestic product (GDP) change last year was -4.8%, after a +2.8% performance in 2011 and a nation-leading +6.3% in 2010.

In the past couple of years, world trade has slowed as a fallout from the sovereign debt crisis in Europe.

Austerity has become the buzzword for government spending globally and China’s GDP growth is easing back to around +6.0% annually from +10.0% or more not so long ago.

Newfoundland and Labrador, similar to other resource-oriented provinces, has been caught in the downdraft. There are indications that’s about to change.

The future holds better prospects. In this year’s second quarter, the Euro-zone finally returned to positive growth, +0.3% quarter to quarter. The turnaround will be further solidified in 2014.

The U.S. market is the most important destination for Canadian exports. Thanks to a boom in energy development and a strong recovery in housing starts, the American economy is on a solid upswing.

Ottawa’s spring budget included an infrastructure spending program that will apportion $70 billion in projects across the country over the next ten years.

Newfoundland and Labrador will also be able to count on its own major capital spending initiatives.

Provided that the work is not derailed by a legal dispute with Quebec, new hydroelectric stations on the Churchill River will account for many billions of dollars in construction for years to come.

At the same time, it’s unfortunate that the acrimony over the original power-sharing contract with Quebec, setting out a low fixed price, to come down even further from 2016 to 2041, hangs over the province’s dealings with its neighbor.

Also, further billion-dollar-plus expansions of oil-extraction sites are planned for the Jeanne d’Arc basin at sea in the Grand Banks.

Oil producers in Alberta are struggling with the question of how to move their output to either coast or the Gulf of Mexico. Proponents of the Northern Gateway, Keystone XL and Energy East pipelines are grappling with contentious environmental and right-of-way issues.

Newfoundland, with its ready Atlantic Ocean access, is sitting pretty.

The days of Newfoundland’s young men and women having to leave the province to find work elsewhere, such as in western oil fields, may not have entirely disappeared.

But for many, the option to stay at home and find rewarding employment, in non-fisheries resource development or support services, has improved well beyond what their parents might have ever expected.

For more articles by Alex Carrick on the Canadian and U.S. economies, please see his market insights. Mr. Carrick also has an economics blog.

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