June 11, 2009
Economic Snapshot — June 12, 2009
The HST will likely cause Toronto’s construction slump to be protracted
By John Clinkard, Consulting Economist, CanaData
However it is measured, the economic pulse of the Toronto census metro area (CMA) has slowed significantly over the past twelve months. Probably the best gauge of this deterioration in economic health is the growth rate of total employment. Since May 2008, year-over-year job growth has slowed from +2.5% to -2.9% in May of this year. This dramatic drop in the rate of job creation has caused Toronto’s unemployment rate to jump from 6.6% to 9.1%, the highest level in over 12 years and the seventh highest unemployment rate among the country’s 27 CMAs.
Across Toronto’s major industrial sectors, almost nine out of every 10 jobs lost over the past year have been in the construction industry. This has been in large part due to the 55% year-to-date decline in residential building. In addition, significant declines in employment have occurred in manufacturing (-11.9%), public administration (-11.5%) and business, building and other support services (-8.3%). In the other direction, year-over-year employment has been up in finance, insurance and real estate (+6.7%), followed by accommodation and food services (+6.4%), information and culture (+6.0%) and health services (+3.3%).
Despite its depressed labour market, the combined effect of record-low interest rates and a moderate decline in prices is contributing to a strengthening of existing home sales in the Greater Toronto Area (GTA). According to the Toronto Real Estate Board, from January to May of this year, actual unit sales (i.e., not seasonally adjusted) rocketed by 259%. This was three times faster than the rate of increase between January and May of last year. Also in May of this year, existing home sales rose by 1.9% versus May 2008, their first year-over-year increase since December 2007.
While the near-term outlook for existing home sales looks positive, the outlook for new construction, particularly in Metro Toronto, does not. This is due to the impact of the Harmonized Sales Tax (HST), to be introduced in July 2010. A recent study by Stikeman Elliott estimated the HST will increase the cost of new houses priced at $400,000-plus by close to 6%. This significant price increase will doubtless depress new construction and job-site employment in the metro area well into 2012. It will also force more potential purchasers to look further afield for a new home.
John Clinkard has over 30 years experience as an Economist in international, national and regional research and analysis with leading financial institutions and media outlets in Canada.
Toronto Employment – Total vs Construction
Data source: Statistics Canada/Chart: Reed Construction Data – CanaData.
