Study: The West Coast boom

2005

British Columbia's economy has rebounded sharply from the doldrums of the 1990s, according to a new study published today in Canadian Economic Observer.

While several factors have fuelled widespread growth in the province since 2001, the boom is quickly creating shortages, notably for labour. The stronger economy has already driven the unemployment rate in British Columbia to a record low.

To prevent these shortages from curtailing potential growth, the province has only a handful of solutions: attract more people, encourage more people to enter the labour force, or use its workers more efficiently by increasing productivity.

Attracting workers to remote areas of British Columbia will also be a challenge, especially with Alberta growing so rapidly next door.

The study concludes that British Columbia has rightfully earned its reputation as Canada's gateway to the booming Asian economy.

Record commodity prices have triggered a revival of British Columbia's mining industries, notably metals and coal, even as forestry has slumped.

Infrastructure projects to carry the increasing volume of trade in both directions with Asia is boosting construction in the province, while work has only just begun on projects for the 2010 Olympics.

The 1990s: A "lost decade"

After leading Canada's economic growth from 1984 to 1990, British Columbia fell behind in the 1990s. Real gross domestic product per capita fell from 8% above the average in the rest of Canada in 1992 to 8% below by 2002, after which it began to recover.

Much of the weakness in the 1990s originated in a prolonged slump in demand for housing. Residential construction fell nearly 25%. The housing slump partly reflected a sharp slowdown in population growth after 1995, as well as a correction from sky-high housing prices. The price of residential construction fell 10% between 1994 and 2000.

As well, business investment was little changed in the years following the Asian crisis in 1997. By 2002, it had increased by less than $1 billion, or under 10%.

Growth rebounds following 2001

In 2001, economic growth in British Columbia hit a low of 0.6%. Since then, however, real gross domestic product has averaged 3.4% a year, surpassing the national average.

The rebound was initially led by housing, which grew at a double-digit rate every year for a total increase of nearly 80% since 2000. This was the fastest gain in Canada, surpassing the nation-wide average that accompanied low interest rates.

Housing prices responded to the surge in demand by recovering their losses in the 1990s. The price of all residential construction has risen 20% since 2000.

Investment began to take off in 2003 when trade with China and corporate profits began to rise rapidly. Investment spending has increased by $4 billion since 2003 to a projected $17.8 billion this year.

Mining, including oil and gas investment surged from $2.4 billion to $4.0 billion last year. While mining companies plan a drop to $3.5 billion in investment this year, the slack will be picked up by transportation and utilities.

Fuelled by investment demand, capital goods industries have led growth in manufacturing shipments in the last two years. After rising about 5% a year from 1999 to 2003, shipments of these goods jumped 33% between 2003 and 2005. This reflects the sudden surge in construction on the West Coast.

While British Columbia's exports have grown slowly so far this decade, their composition has changed markedly. For most of the 1990s, exports of forestry products dwarfed all others. Starting in 2000, however, exports of other goods have surpassed those of forestry products, with energy exports leading the gain.

The shift in the composition of British Columbia's commodity exports parallels a switch in their destination. Since 2001, the US share has fallen from 70.0% to 64.0%, while Asia has jumped from 20.5% to 24.0%. As a result, British Columbia is less dependent on the American market than the rest of Canada. Conversely, its orientation to Asia is nearly five times greater than the 5% in the rest of Canada.

Labour markets tighten

By 2004 and 2005, all sectors of demand were rising in unison. Consumer spending posted its strongest increases in 10 years. Housing was growing at a double-digit rate. Business investment accelerated, while exports snapped out of a three-year slump with a 16% gain in earnings in 2004 and 2005.

The broadly based nature of this growth helps explain the sudden tightening of the labour market over the last two years.

Employment growth picked up after 2001, especially in the last two years. Most of the ebb and flow in job growth occurred outside of Vancouver, which posted steady growth since 1990. Jobs in the rest of the province fell between 1996 and 2001. But since then, they have risen 10.4%, leading British Columbia's revival.

The increase in jobs was dominated by construction and real estate, a reflection of the housing boom that raised starts from 12,000 units in 2000 to 31,000 in 2005.

The heavy reliance of growth on construction and housing is important for a number of reasons. It aggravates bottlenecks by requiring skills that only a small number of people have. This is especially true of jobs in construction and real estate. And relatively few immigrants work in these areas, the one area of the labour force expanding recently.

Starting in 1997, British Columbia's population growth began to slow markedly. The reasons for this slowdown owe more to interprovincial than international movements of people.

The combination of a sudden upturn in employment and lagging population and labour force growth pushed the unemployment rate to a record low. This is most evident outside of Vancouver, where unemployment has fallen from near double-digits in 2002 to 6% last year, less than the previous lows in the early 1990s.

In Vancouver itself, unemployment stood at 5.7% last year, comparable with its low in 2000 but still a marked improvement on its 8% rates during much of the 1990s.

With population and labour force growth in British Columbia lagging behind their peak rates in the 1990s, one possible solution to labour shortages is to use labour more efficiently.

Output per hour worked in British Columbia lagged the rest of Canada in the 1990s, rising less than 1% a year. It has begun to recover recently as investment has picked up, but remains below the national average, partly because of the greater number of part-time jobs in the province. This suggests ample room exists to improve the use of labour.

The study "The West Coast boom" is now available for free online. The study is also included in the May 2006 Internet edition of Canadian Economic Observer, Vol. 19, no. 5 (11-010-XIB, free), which is now available. To obtain a copy, go to the Our products and services page online. The monthly paper version of Canadian Economic Observer, Vol. 19, no. 5 (11-010-XPB, $25/$243) will be available on May 18.

For more information, or to enquire about the concepts, methods or data quality of this release, contact Philip Cross (613-951-9162; ceo@statcan.gc.ca), Current Economic Analysis Group.