Brace Yourself, BC – Personal Expenditure On Consumer Goods And Services As A Percentage Of GDP


chart care of Kevin at saskatoonhousingbubble.ca 1 May 2012. Thanks Kevin.

Our province’s economy is very vulnerable to the reduction in spending that will inevitably result from a housing slowdown.
– vreaa

31 responses to “Brace Yourself, BC – Personal Expenditure On Consumer Goods And Services As A Percentage Of GDP

  1. I don’t know how much of the disproportionately high consumer spending in bc is actually connected to RE or the wealth effect. Isn’t this a tourist province? Definitely more so than Saskatchewan or Canada as a whole. Real estate is going down and consumer spending with it dont get me wrong but this is a bit apples to oranges I think.

    • Saskatchewan aside, consider the rapid increase.

      • Real estate and consumer spending hugely correlated. It was what partly masked the US, if not most, property bubbles.

        However, I believe BC’s consumer spending partly amplified by new inflows of capital not reflected in GDP mainly through immigration and HAM.

        Add another 5-10% effect from stronger CDN leading to cross border shopping and fewer tourist arrivals.

      • On closer examination, if you look at the chart in 1988-89, you’ll see a sudden uptick in BC.

        That was the Hong Kong Immigration factor leading up to the Chinese handover in 1997.

        By 1999, HK immigrants began to feel comfortable returning home which explains the 3-ish year drop. It was also accelerated by the most wealthy of the HK immigrants who left Canada due to a new tax rule that required citizens to declare all international assets which made them taxable.

        Right around 2005, the China factor kicked in. How long this lasts, we shall see.

        Made no mistake, Chinese buyers have skewed this chart and how long property prices stay high rests heavily on them – the catalyst.

      • they are a factor, not unlike the olympics build and show were also a large factor injecting external money. but, it is the change in credit availability that amplified these and other factors to extremes. if available credit gets hit (eg. cmhc hard stop, external events, china tightening, etc.), a catalyst does nothing without potential.

    • A lot of that spending may be from lines of credit. With prices skyrocketing, many current owners feel wealthy, and can’t resist borrowing against equity to fund their life-style, finally buy that BMW and so on.

      • Certainly some contibution but we need not demonized credit spending by assuming the majority are over extending and buying a ‘BMW’.

        Credit is like democracy, we are better for it as a society.

      • Totally agree. While there has been much discussion about ballooning mortgage debt in Cda, the HELOC boogeyman is what our officials are really worried about (and rightly so).

      • society is like credit – you get what you pay for
        isn’t heloc mtg debt?

      • BLM: “Credit is like democracy, we are better for it as a society.”

        Credit is a useful tool when extended and used prudently. The entire Western world is waaaaaaaay past that point.

      • Like the democracy angle. Democracy is a slow and steady process, slow to the point of frustration but in the long run is that way for a reason; credit, alas, is sometimes a fickle beast and as we have discovered, and not always adequately scrutineered.

    • How else could you explain this discrepancy? Consumer spending would pretty much come to a grinding halt (then get shifted into reverse) if a major housing and/or stock market downturn were to occur. Given how things have been going in Vanc, I’d say the effect would be magnified many times over. Perhaps this is beginning to happen as we speak. My recent trip the Home Depot (as good an indicator as any IMHO) was very much different than what I can remember from a few years ago when parking lots were overflowing, long frustrating lineups at the register where common and various supplies always seemed to be out of stock. Today, the staff outnumber the customers. Anyway, that’s just how things are here. On the bandwagon one moment, then off the bandwagon the next just like typical Canucks fans.

      As for BC being a tourist province, well, things have changed. The numbers have been in a steady decline over the past few years. Places like Victoria, Kelowna and Whistler are completely dead now. Exclusive, high end destinations like the Wickinninish Inn used to have waiting lists and now rooms are available pretty much year round. US tourists, cruise passengers etc are skipping the lower mainland now as it is not the bargain it used to be (really, that’s why the came here). Now the tables have been turned and both Americans and Cdns are heading to Washington, Oregon, California, Arizona and even Nevada in record numbers.

  2. Joe_Blown_Away_By_High_Housing_Costs

    It’s the rapid increase post 2005 in BC that stands out in this graph. That can’t all be tourism. It’s not like tourism wasn’t big in BC before 2005.

    Any ideas what caused the spike around 2005? The only catalyst I can think of is Olympic hype–which kind of goes to the point made by Ridiculous, that this is due to tourism.

  3. Joe_Blown_Away_By_High_Housing_Costs

    Check this out from Globe and Mail’s blogger series. A couple in their 30s with a son is looking to buy a detached house with a yard in a neighbourhood in the Vancouver area with a sense of community and lots of kids — for 500k. The woman says, “the thrill of paying someone else’s mortgage is starting to wear thin and we are getting ready to take the plunge into home ownership.”

    It’s painful to watch these people about to take the plunge into the stupidest decision of their lives. BTW, I don’t think what she’s talking about exists in Vancouver. I mean for 500k, you expect a detached house with a yard and a sense of community! I think you’ll have to move to Surrey and even there it might be a stretch.

    http://www.theglobeandmail.com/globe-investor/personal-finance/mortgages/home-buying/in-vancouver-is-a-500000-fixer-upper-out-of-reach/article2412101/

  4. Renters Revenge

    This is what has been fueling consumer spending, and why a RE correction might be of grave concern to the BC economy as a whole:

    • Agreed, credit cards are gateway debt. Once you ‘graduate’ the banks ‘promote’ you to a nice fat LOC.
      It looks like a good chunk of this spending is based on consumer debt, which has increased because of the rising cost of housing post 2005.

    • Breathtaking chart.

    • They should re-label credit as ‘potential debt’:
      I’ve just been given a 50K ‘line of potential debt’ from the bank, hooray ?

  5. This high % is thanks in part to you and your renting posters.

    This calculation excludes purchases of dwellings but includes imputed rent for owner-occupied dwellings.
    So more rental units in housing will bolster the stat. Makes perfect sense to me since Vancouver has a very high # of rentals in owner occupied homes.
    We’re in no danger of ever being Saskatchewan, or Alberta, or…
    It’s also a measure of the strength of an economy since it includes payments and fees to governments to obtain permits and licenses.

  6. I take BLM’s comments about capital inflows going to consumption, but we should quantify them better than just say they are the major reason for this deviation.

    The province has over 4MM people. What has immigration from Asia been in the last 20 years, and how many can still claim to be surviving on remittances from Asia and not primarily local incomes?

    Let’s get some data and do a quick bit of math with some guesswork
    – Net international population growth has been 750,000 in the past 20 years. That is about 20% of BC’s current population.
    – About 75% of immigration comes from Asia (though this is for informational purposes only)
    – It is unclear the wealth of immigrants and how many maintain significant business interests in their countries of origin. Let’s generously put that at 30% of immigrants from the past 20 years derive most of their incomes from overseas.
    – How about tourism? See page 13 http://www.jti.gov.bc.ca/research/IndustryPerformance/pdfs/tourism_indicators/Value_of_Tourism_in_British_Columbia.pdf
    – BC’s GDP is about $200BB in 2011
    – PCE as % GDP went from 60% to 72%, or from $120BB to $144BB, a difference of $24BB.

    OK so we have 750K, 30% of whom are rentiers, that is 225K residents are in effect tourists.
    Tourism is about 3.5% GDP. We can argue that was around 2% GDP 20 years ago, so that explains 1.5%, or $3BB of that difference.
    We then have 225K rentiers who will spend on average $40K/year (generous), so that’s $9BB of the growth. This would be the high bar and would likely be lower than this since my assumptions are (I think) on the high end of what is plausible. That leaves $12BB difference at minimum that cannot be explained by direct remittances or tourism revenues. That could be in part knock-on spending from these items: consumption by those whose incomes are dependent upon consumption by direct foreign capital.

    So I agree with BLM: there is evidence that BC has migrated from a manufacturing and resource economy towards one that is dependent upon foreign remittances to bolster its GDP.

    That said, overlaying house prices with that graph will be stark. There should be little doubt that “remittances” come in the form of debt as well as direct purchases. We should look at debt as well as PCE to get the bigger picture.

    This is all interesting but misses, in my view, the fundamental issue: house prices compared to rents and incomes are out of whack and not sustainable in the long run.

    • @jesse, I applaud you for this breakdown. Makes these comments so much more stimulating.

      Several points worth adding/examining.

      Rentiers aren’t really all tourists. Many are retirees with significant assets/pensions back in Asia but immigrate to Canada for their retirement until death.

      Consummer goods and services technically should include housing costs. For every new immigrant renter/buyer, that is a chunky bit of expenditure added to the chart.

      Like you said, if we could overlay this chart with immigration inflows, housing prices and rates it would show a heck of a lot including what we may not know yet.

      Cheers

      • BLM wrt tourism, yes that’s true, I only lump them together because tourism and longer-stay rentier (including those born in BC to be clear) flows are the same in their essence if the capital is imported. Tourists simply have a faster turnover but are, arguably, nonetheless part of the community.

    • this is me not being preverted

  7. Never mind guys. Ignore all my other idiotic rants. Everything is fine…

    http://www.businessinsider.com/vanilla-ice-the-housing-market-is-better-than-ever-2012-5

    (notice how they forgot to airbrush out the graphic of the collapsing NASD…oops)

    Ice, Ice baby…yeah.

  8. The main takeaway from this graph is that every provincial economy in Canada is more reliant for GDP growth by consumer expenditures than ever before. The problem with this is that consumers are also the most indebted they have ever been. A slowdown in consumer spending will be a bigger drag on GDP growth than ever before as well. Have we painted ourselves into a corner?

    • Agreed.
      Wouldn’t it be conceivable that with borrowing hitting a wall, consumer spending would drop by, say, 10%?
      What would that do to GDP?

  9. Thai-born Chinese Canuck

    I was watching Al Jazeera English via satellite dish. Suddenly one report came up. It was about the buoyant Canadian housing market and the level of household debts that are now a cause for concern. Nothing is new actually but this means the world is now cautious about Canada. FYI

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