Updates › January 2016

Bank of Canada Interest Rate Announcement

The Bank of Canada announced this morning that it is maintaining its overnight rate at 0.5 per cent. In the press release accompanying the decision, the Bank noted that inflation is evolving as expected with total CPI continuing to test the bottom of the Bank's 1-3 per cent target range due to low energy prices. However, the Bank expects that inflation will rise over the next year, reaching its 2 per cent target by mid-2017.  On the economy, the Bank sees economic growth firming after a slowdown in the fourth quarter of last year. The Bank projects that the Canadian economy will grow a modest 1.5 per cent this year before strengthening to 2.5 per cent in 2017. 
In not moving on interest rates this morning, the Bank is recognizing that there is little that monetary policy can do to offset a significant supply-side shock such as the dramatic decline in oil prices. Indeed, given Canada's floating exchange rate, the loonie has already adjusted to help partially absorb the negative impact of falling commodity prices on exports.   Keeping in mind that the Canadian economy is still projected to grow at a rate very close to its somewhat diminished potential for 2016 and that inflation will be spurred by a dramatically lower Canadian dollar, we anticipate that the Bank will reassess the need for monetary stimulus once the worst of the oil-shock had passed. That means, barring a significant deterioration in the economy, the Bank will more than likely remain sidelined for 2016.

Canadian Housing Market

Canadian housing starts closed the year down close to 20 per cent, falling from 212,028 units at a seasonally adjusted annual rate (SAAR) in November to 172,965 units SAAR in December The six-month trend in Canadian housing starts of 203,500 units SAAR was also down. For the year 2015,  total Canadian housing starts were up 6 per cent over 2014.  Large declines in oil-producing provinces such as Alberta, Saskatchewan and Newfoundland were largely offset by strong new home construction in BC and Ontario. 

Housing starts in BC rebounded in December, rising 26 per cent to 33,346 units SAAR.  On a year-over-year basis, housing starts were up 15 per cent, led by a 22 per cent increase in multiple unit starts which offset a 3 per cent decline in single detached starts. For the year 2015, total housing starts in BC increased 12 per cent compared to 2014. 

Looking at census metropolitan areas (CMA) in BC, total starts in the Vancouver CMA were up 20 per cent year-over-year in December due to a 27 per cent jump in multiple starts. For all of 2015,  Vancouver CMA new home construction rose 9 per cent, finishing the year at 20,863 total starts.  In the Victoria CMA, housing starts more than doubled compared to December 2014, with strong gains in both single and multiple starts. For all of 2015, Victoria CMA starts increased 53 per cent to 2,008 total starts. Home construction in the Kelowna CMA closed the year down, falling 44 per cent year-over-year. For all of 2015, total housing starts dipped slightly, falling 2 per cent to 1,280 total starts.  Housing starts in the Abbotsford-Mission CMA were up 21 per cent to finish the year and were 62 per cent higher for all of 2015 at 806 total starts. 

Canadian and US Employment

Employment in Canada increased by 23,000 jobs in December, a 0.9 per cent increase over December 2014.  The national unemployment rate was unchanged at 7.1 per cent. For all of 2015, employment posted average growth of just under 1 per cent or about 13,000 jobs per month. 

In BC, employment fell for a second consecutive month, dropping by 7,900 jobs in December. Those job losses, combined with an increase in job searchers migrating from other provinces helped to push the unemployment rate 0.5 points higher to 6.7 per cent. For the year 2015, employment in BC increased 1.3 per cent but grew at a 2 per cent rate over the second half of the year. 

In the US, payrolls jumped by 292,000 jobs and revisions to past months estimates added a further 50,000 to payrolls. The US unemployment rate was unchanged at 5 per cent.  Over the past three months, the US economy is averaging a robust rate of new job creation at close to 300,000 jobs per month.