Update on the Nova Scotia economy – steady growth with upside potential

Midway through the first half of 2019, a number of key economic indicators suggest that Nova Scotia’s economy is operating very close to its full capacity.

First, despite a record net inflow of 11,600 international migrants in 2018, the province’s unemployment rate hit 6.4% in February of this year, its lowest level in more than 32 years.

Second, over the past 12 months, the province’s job vacancy rate has hit the highest level in its nine-year history. Not surprisingly, this record low unemployment rate and a high job vacancy rate are the result of a solid pattern of job growth. Indeed over the past six months, total employment exhibited its strongest year-over-year gain since late 2008. Moreover, virtually all of the jobs added were full time and a majority were in the private sector.

Despite this healthy increase in total employment and the above-mentioned inflow of immigrants, retail spending over the past 12 months has risen by only 1.1%. Weak sales of new and used motor vehicles offset much of the impact of stronger sales of furniture and home furnishing stores, of gasoline stations and of convenience stores.

While strong job growth and net migration have not had much impact on consumer spending, home sales in the last 12 months are up by 24%. As a result of this surge in housing demand, the months-supply of homes for sale is the lowest it has been in 14 years.

Much of this strength in sales is focussed in Halifax where sales in 2018 hit a six-year high and, according to the March Royal Bank Housing Trends and Affordability Report, home ownership continues to be within the reach of most buyers.

Fuelled by the strong growth of housing demand, housing starts in Nova Scotia posted a 20% increase in 2018 largely on account of strength in starts of row (+125% y/y), semi-detached (+45% y/y) and single-family (+26% y/y) dwelling units. Apartment starts were up by 8%.

Looking forward, a recent surge in applications to build multiple units suggests that total starts will remain strong, at least through the first half of this year. This positive outlook for the construction of multiple units is reinforced by the fact that the province’s apartment vacancy rate, which stood at 2% in October of last year, is at a 28-year low. After hitting a nine-year high of 4,800 units in 2018, we expect starts to total in the range of 3,800 to 4,300 this year and in 2020. This moderation in housing starts appears consistent with the Canadian Real Estate Association forecast of existing home sales in 2019 of 10,980 and 11,400 in 2020 compared to 11,180 in 2018.

Based on the most recent Statistics Canada Capital Investment Survey, capital spending in Nova Scotia is projected to decline by 5.8% in 2019 after retreating by an estimated 1.1% in 2018. Factors contributing to this weakness include an absence of planned exploratory offshore drilling, the effects of which will be only partially offset by increased spending on the decommissioning of the Sable Island natural gas project and, subsequently, on the shutting down of Encana’s Deep Panuke natural gas project.

Despite the rather muted outlook for investment in natural resources, investment in manufacturing is projected to increase due in part to Michelin North America recently announcing two new projects at its Pictou manufacturing facility. In addition, the recent Federal Budget announced an infusion of $3 billion to upgrade infrastructure in the province. Finally, Pieridae Energy has received approval to build an LNG plant in Goldboro Nova Scotia with an estimated cost of $8 billion. A final decision to proceed with this project is expected in June.

After posting a gain of 7% in 2018 due largely to strong sales of lumber and automotive tires to the United States and lobsters and wood pulp to China, Nova Scotia’s export growth will probably moderate somewhat this year due to a slower pattern of growth in both of those countries. Moreover, the recent U.S.-China trade dispute has heightened uncertainty about the province’s near term trade prospects.

Despite the areas of weakness noted above, on balance the outlook for the province’s economy remains positive due in large part to recent strong job growth and the relatively healthy outlook for housing. This generally upbeat outlook is reinforced by the latest Canadian Federation of Independent Business Business Barometer which posted a healthy gain in February that took the monthly index to 66.3, the highest in the country.

John Clinkard has over 35 years’ experience as an economist in international, national and regional research and analysis with leading financial institutions and media outlets in Canada.

Real* Gross Domestic Product (GDP) Growth – Nova Scotia vs Canada