2016 Ontario Economic Update: Hamilton Niagara Peninsula Economic Region

Presented by the Credit Unions of Ontario and the Ontario Chamber of Commerce

The Hamilton-Niagara Peninsula (HNP) Economic Region spans the three census metropolitan areas (CMA) of Hamilton, St. Catharines-Niagara, and Brantford, and also covers Haldimand-Norfolk. The combined region represents about 11 percent of the provincial population, about 1.45 million people.

The HNP region grew more rapidly in 2015 than it did in 2014. Employment expanded at a faster pace and more residential activity materialized as did non-residential permits. Unlike 2014, most of this year’s employment growth was outside the Hamilton CMA. The St. Catharines-Niagara CMA led with a near five percent rise, followed by a substantial employment gain outside the three CMAs in the region. Employment growth in the Brantford CMA is running at a 1.5 percent pace this year with Hamilton CMA around one percent.

Labour market indicators of a regional and local economy are the best available but not without limitations. Statistics Canada’s household sample for the Labour Force Survey (LFS) is subject to sample variability, which can be large in smaller geographies or industry sectors and result in swings unrelated to underlying fundamentals or trends. The St. Catharines-Niagara 2015 results are treated with some caution for this reason.

Employment in the HNP region is rising around one percent annually and performance since 2013 has exceeded that trend, implying a cyclical gain. Part of this cyclical push is coming from the residential and construction sectors. Service-producing industry employment also contributed to the cyclical rise led by education and business, building, and support services.

Full-time employment is well above trend growth for the second year in a row posting near three percent gains annually. Most of the gains are centred in the Hamilton and St. Catharines-Niagara CMAs. With part-time employment down and full-time up, total hours worked is higher which suggests economic growth is higher than implied by headline total employment growth.

The unemployment rate at six percent is the lowest in years. Hamilton’s rate will approach an average of 5.6 percent in 2015 and in St. Catharines-Niagara it will fall below seven percent, the lowest since 2008. Brantford’s rate is below five percent.

A large reason behind the decliningunemployment rates is a lower rate of participation in the labour force, especially since the 2008-09 recession. Had the labour force participation rate remained roughly the same as in 2008 and employment growth was unchanged, the region’s unemployment rate would be closer to nine percent, rather than six. This is not unique to this region as a similar pattern plays out in most regions in Canada.

Economic restructuring is an ongoing process, but the major consolidation and closures in the manufacturing sector during the last decade and since the last recession have subsided. Regional manufacturing employment has stabilized at above 90,000 persons, down from 135,000 persons in 2003. Manufacturing employment in Hamilton is up about eight percent this year with a similar gain recorded in the Brantford CMA. A 10 percent decline is evident in the St. Catharines-Niagara CMA this year, the largest since 2008, whereas previously employment was rangebound and stable. Further restructuring in the region’s manufacturing sector is still possible with older, foreign-owned operations most at risk.

Service-producing industries share of the economy and employment has risen to its highest point in 2015. The employment share of service industries in the regions is 77 percent, compared to 63 percent in 1987 and 70 percent in 1996. The highest share is in the St. Catharines-Niagara CMA, due to its significant tourist industry, while the Hamilton CMA is close behind on account of its trade, transportation, education, health, and business services sectors.

Housing and residential construction are important growth drivers in the regional economy and will reach multi-year highs in 2015. Low interest rates, an improving economy and rising consumer confidence have generated double-digit sales gains across the region. The average sale price is up about eight percent to $380,000. Sales and price performance this year is similar across the five real estate boards comprising the HNP region.

Residential construction is on track this year to hit its highest level since 2006 at a predicted 6,000 units, according to building permits issued. Permits issued in the Hamilton CMA will increase just over 20 percent to 3,200 units with the largest gain in the Brantford CMA at around 60 percent. Permits issued in the St. Catharines-Niagara CMA will jump about 25 percent.

Non-residential permits in the Hamilton CMA received a boost from government permits issued in Burlington for the Joseph Brant Hospital. Total non-residential permits will rise more than 15 percent in Hamilton and around eight percent in the HNP. However, private non-residential permit activity is tracking below last year.

Some notable developments underway or on the horizon are Fibracast’s plant in Stoney Creek that will manufacture water treatment membranes, creating about 100 jobs. Construction continues on the Niagara Region Wind Farm project. A new manufacturing plant to make pre-cast parts for wind-turbine towers for that project is underway, employing about 200 workers at its peak. While this is a short-term fulfillment order, the plant could supply other wind turbine projects. Hamilton International Airport will have a new cargo hangar, which will add about 400 direct and indirect jobs when it is fully built.

External growth conditions are favourable for improved economic growth in the HNP region. The low Canadian dollar, faster U.S. growth, and robust growth in the GTA will assist the region’s exports. Alberta’s recession and a weak oil and gas sector will continue to hamper exports into those areas. Moderate underlying growth trends will support domestic demand, which will grow off low interest rates and new fiscal stimulus.

Manufacturing, tourism, and transportation services stand to benefit from more favourable external conditions and domestic sectors such as construction, real estate, and retail trade will gain from low interest rates and an improvement in economic conditions.

Above-trend employment growth is predicted for the HNP region and the Hamilton CMA during the next two years. This improved growth profile is relative to the weak performance seen from the recession through 2013 and reflects the end of the major restructuring in the manufacturing sector. Some further plant closures or operational downsizings are possible, but not to the same extent as in the past decade and a half.

Job growth is forecast at 1.7 percent during 2016 in the HNP region, slightly lower than the 2.2 percent expected in 2015, but higher than every other year since the recession. In the Hamilton CMA, employment growth picks up to 1.5 percent annually through 2017 from 1.1 percent in 2015. Hamilton’s unemployment rate is forecast to decline to below five percent in 2017, while in the HNP region it will decline, but remain above five percent.

Robust housing market activity will extend into 2016 and 2017 with a slight slowing in the pace of annual gains likely. Housing sales will set new record highs along with housing prices. HNP region MLS® residential sales of 28,000 units are forecast during 2017, up from 25,000 units expected in 2015, which will be a record high. The forecast average sale price will hit $440,000 in 2017, up from $380,000 in 2015. New residential construction, measured by building permits, also climbs each year in the forecast, reaching 7,000 units in 2017, not a record but the second highest.

Those forecast regional housing trends are mirrored in and largely driven by the Hamilton CMA. Hamilton-Burlington MLS® residential sales in 2015 at 15,500 units will exceed the previous record and will continue to set new highs in 2016 and 2017 to reach 17,500 units. The average sale price will also set new highs each year hitting $500,000 in 2017. New construction will follow higher sales and prices.

Non-residential activity will also expand in the next two years led mostly by private sector investments. Total non-residential building permits in the HNP region are estimated at $1 billion in 2016, driven by a jump in commercial and industrial permits, while public permits come off their 2015 high. The Hamilton CMA is predicted to lead the region due to its declining vacancy rates and proximity to the GTA.

The region’s low population growth rates of the past few years will gradually rise due to more in-migration. Hamilton CMA’s growth rate is predicted to reach is fastest pace in many years at 1.4 percent in 2017.

The Hamilton CMA is an affordable alternative to higher housing and land prices in the GTA and with further improvements to the transportation network this trend will extend and accelerate. This facilitates and encourages the increasing economic integration with the GTA economy.

HAMILTON NIAGARA PENINSULA ECONOMIC REGION

Source: Statistics Canada, CREA, Central 1 Credit Union forecasts.
Notes: Housing sales and prices represent combined activity in real estate boards within the region.

*Approximated with data from the REALTORS® Association of Hamilton and Burlington

HAMILTON NIAGARA PENINSULA ECONOMIC REGION

Source: Statistics Canada, CREA, Central 1 Credit Union forecasts.
Notes: Housing sales and prices represent combined activity in real estate boards within the region.

*Approximated with data from the REALTORS® Association of Hamilton and Burlington

Ontario

Summary

Ontario’s economic performance is not shared equally in all regions in the province due to differences in their economic makeup or base. External macro factors play an important role not only in Ontario’s economic performance but also in each region to varying degrees. Economic prospects for Ontario are improving aided by positive externals such as a low dollar, faster U.S. growth, and low interest rates.

Regional growth performances during 2015 were led by the Toronto and Hamilton-Niagara regions, with the Kitchener-Waterloo-Barrie and London regions close behind. At the other end of the growth spectrum were the northern regions and to a lesser extent Windsor-Sarnia and Stratford-Bruce. A narrowing of growth differentials amongst regions was evident, though small, and made more apparent by the large discrepancy that materialized following the 2008-09 recession.

Further convergence in regional growth performances is expected during the next two years with some of the laggards closing the gap rather than the leaders surging further ahead. Exceptions are the northern regions, which are heavily dependent on mining and resources but face a weak outlook for metal markets, where growth will remain low and possibly negative.

All regions will see more housing activity, in varying degrees, depending on local economic and market conditions. Some previously slower regional markets such as London and Windsor-Sarnia are poised to have substantial gains. Toronto and Hamilton-Niagara markets will generate the largest price increases.

Projected population growth in 2016 and 2017 gradually edges higher in most regions, except in the north. Low growth will continue to prevail in the Kingston-Pembroke, Stratford-Bruce, and Windsor-Sarnia regions. A notable pickup is forecast for the Muskoka-Kawarthas region.

REPORT FRAMEWORK

The regional areas in this report follow Statistics Canada’s 11 Economic Region boundaries for Ontario. The main metropolitan area in each region is covered. The principal economic indicators used to track regional economic performance are employment, unemployment, housing sales, housing prices, residential and non-residential building permits, and population. Other data sets, such as housing starts and non-residential building construction investment spending, are referred to in the text, but no data is presented in tables. Gross Domestic Product (GDP) data are not available by region.

The labour market is a key indicator of regional performance and Statistics Canada’s Labour Force Survey (LFS) is the main source of this information. Regional LFS data has issues with sample errors making it difficult to separate underlying movements from sample noise, which is more problematic in smaller regions. Employment Insurance (EI) data is helpful to verify labour market changes, but it too has limitations.

RECENT PERFORMANCE VARIED

The province’s variable, but overall, moderate growth performance so far in 2015 has been mirrored in most regions. Provincial real GDP growth in the first quarter was minimal followed by a modest rebound the second quarter and very likely a stronger performance in the third quarter. Fourth quarter real GDP growth will probably ease.

Ontario’s employment profile generally tracked real GDP with a dip in the first quarter of 2015 and faster growth thereafter. Regionally, employment turned up during 2015 in Toronto, Hamilton-Niagara, and London, but declined in the Ottawa, Kingston-Pembroke, Muskoka-Kawarthas, Windsor-Sarnia, Stratford-Bruce, Northeast, and Northwest regions and as a result they will have lower employment for the year than in 2014. Kitchener-Waterloo-Barrie region employment was little changed.

In more than one instance, the 2015 LFS results were at odds with EI data, or with recent trends, and were interpreted as sample variability rather than a fundamental change in the labour market. The regions in question were Kingston-Pembroke, Muskoka-Kawarthas and Stratford-Bruce for doubtful downside shifts and London’s sharp increase was a questionable upside move.

Unemployment rates in most regions will close out the year lower than in 2014. The exceptions are the Muskoka-Kawarthas, Windsor-Sarnia, Stratford-Bruce and the Northeast. EI data did not corroborate the unemployment rate jump in the Muskoka-Kawarthas and Stratford-Bruce regions, leaving LFS sample variability as the likely cause.

While there was some divergence in regional labour market performance in 2015, this was not the situation in the housing market. All regional housing markets expanded with more sales, higher prices (except for the Northeast), and more new construction. The degree of market expansion varied with larger gains in the central and southwest regions and smaller gains in the eastern and northern regions.

Non-residential construction was less robust than residential construction in most regions. The Toronto region will post a 17 percent rise in 2015 mainly due to a 53 percent jump in public permits, with private permits, industrial and commercial buildings up eight percent. The London and Northwest regions will also have double-digit gains this year, led by public permits as well. Regions with less activity this year, such as Ottawa and Kingston-Pembroke, are coming off a public permit surge in 2014.

The latest regional population data is as of July 1, 2014. Statistics Canada’s 2015 estimates will be released in 2016. At the provincial level, population growth slowed in the year ending June 30, 2015 to less than one percent on fewer immigrants and net non-permanent residents. Net interprovincial migration remained negative, though the outflow slowed.

IMPROVING OUTLOOK

The performance of Ontario’s regional economies depends on external and domestic factors as well as on a region’s industry and demographic composition. Several regions in Ontario are quite dependent on external export-driven factors. The northern regions with their considerable dependence on forestry, mining, and metal products are at one end of this spectrum, while Ottawa and the Muskoka-Kawarthas regions are more domestically driven and less exposed to export markets.

The external environment for Ontario will turn more positive during the next two years due to a better performance in its largest export market, the U.S., a low Canadian dollar, low interest rates, and low oil prices. Working against these positives will be low metal prices, geopolitical events, and potential disruptions in financial markets emanating from emerging markets. Global economic growth will remain modest and below potential, mainly due to the slowdown in China.

Exports play a key role in Ontario’s economic performance and while international goods and services exports have better prospects ahead, interprovincial exports will be constrained by the negative fallout from the poor oil and natural gas markets that is affecting energy producing provinces such as Alberta.

On the domestic front, government fiscal policy will be more stimulative with time as the impact of more infrastructure spending will be felt to a greater degree. Private investment spending is set to build momentum, while residential investment spending will remain at a robust pace with some slowing into 2017.

Ontario’s real GDP growth is forecast at 2.6 percent in 2016 and 3.0 percent in 2017, following an estimated 2.5 percent expansion in 2015. Statistics Canada’s preliminary 2014 estimate is 2.7 percent. Ontario’s economy has upshifted from its slow growth phase of 2012 and 2013 to moderate growth and, if the forecast proves accurate, will shift to a more robust phase in 2017.

Economic performance across Ontario’s regions during the next two years will continue on recent trends, resulting in a greater divergence between some regions. The northern regions will post slight growth, while the central and southwestern regional economies will be the province’s main growth drivers. In the absence of GDP data for the regions, employment is the best single available economic indicator of a region’s overall performance.

Growth in most regions will increase over 2015 and continue their cyclical expansion from the last recession. The Toronto and Hamilton-Niagara regions also are expected to perform above the provincial growth rate, while the Kitchener-Waterloo-Barrie and Ottawa regions look to perform similar to Ontario’s pace, which is estimated at 1.5 percent in 2016 and 1.4 percent in 2017.

The London region, which was hard hit by the recession and restructuring of its manufacturing base, will continue to regain lost economic output and post growth above the provincial average in 2016 and 2017. In the last year of the forecast, employment will be above the 2007 pre-recession high.

Another manufacturing region hard hit by the recession was Windsor-Sarnia and employment has slowly advanced from its recession low. Forecast employment growth will be close to but below the provincial average and in 2017 employment will be at its highest level since the recession, but still well below the pre-recession high.

The three remaining regions — Kingston-Pembroke, Muskoka-Kawarthas, and Stratford-Bruce — are expected to grow in line with the recent modest trend growth. For example, 2017 employment in these regions is forecast at levels comparable to or slightly higher than those that existed five years ago. In contrast, employment in Toronto, Kitchener-Waterloo-Barrie, and Hamilton-Niagara will be six to nine percent higher, with Toronto leading this group.

All but one region is expected to see lower unemployment rates in 2016 and 2017 compared to this year. The exception is Kingston-Pembroke but this is due more to LFS sample issues than to underlying performance. Ontario’s unemployment rate at 6.6 percent and 6.3 percent in 2016 and 2017, respectively, would be the lowest since the recession. The lowest regional unemployment rate will be in Kitchener-Waterloo-Barrie, followed by London and Windsor-Sarnia. The Stratford-Bruce and Northwest regions will also have low unemployment rates due to low population growth and lack of employment opportunities. The highest unemployment rate will prevail in Windsor-Sarnia at 8.0 percent in 2017.

Regional housing markets will continue on their expansion phase during the next two years. The low interest rate environment is a strong stimulus to all regional housing markets. No recession in Ontario’s housing market is foreseen until the next global economic recession and regional markets will expand reflecting their own local economic circumstances. Housing markets in stronger economies and with higher population growth outperform those with weaker demand conditions.

MLS® residential sales growth is predicted to be most robust and above the provincial averages during the next two years in the Windsor-Sarnia and London regions. These two regions will post the fastest sales growth in 2015 and this momentum carries into the forecast, which is supported by improved economic performance and the release of pent-up demand following the lean post-recession years.

Another more active regional market is Muskoka-Kawarthas. Residential sales are predicted well above provincial sales growth rate at 9.1 percent in 2016 and 6.7 percent in 2017. In this region, labour market performance is less of a housing driver than the influx of retiree migrants from other parts of the province, notably Toronto, in addition to low interest rates. Robust market conditions in Toronto and other regions facilitate and encourage migration.

Less active markets look to be in the northern regions and in Stratford-Bruce, while the remaining regions will perform around the provincial sales pace. The Toronto and Hamilton-Niagara markets have outperformed in recent years and are seen expanding at a slower but still substantial pace.

As for price performance, Toronto and Hamilton-Niagara will still lead all regions and outpace provincial increases. The MLS® residential average sale price will climb in every region during the next two years with the slowest increases in those regions with the lowest sales gains.

Residential construction, as captured by building permits, tracks housing market conditions and most regions will see higher levels during the next two years. Residential construction can be a significant local economic driver.

Non-residential building permits will rise in this forecast with 2017 considerably more active than 2016. Private non-residential building permits will outperform public permits mainly because of higher 2015 levels and the ‘lumpy’ nature of large building projects. Investment on commercial and industrial buildings has been below trend since the recession and the predicted pickup in non-residential private permits will be in response to improved market conditions. Public permits are expected to receive a boost in 2017 when increased government infrastructure spending translates into project development.

Ontario’s population growth will edge higher due to more immigration and a lower net outflow to other provinces during the next two years. Toronto will continue as the main destination for immigrants and will lead the regional growth rankings. Near-zero growth rates will extend in the two northern regions, Kingston-Pembroke, Windsor-Sarnia, and Stratford-Bruce.

There are substantial differences in economic performance within some regions. The main metropolitan area in the region, which is the service, distribution, and administrative centre, can have a different economic structure than in the rest of the region. This is evident in several regions, notably in the Kingston-Pembroke region wherein the economy of the Kingston Census Metropolitan Area (CMA) bears little resemblance to the economic base in the rest of the region. Other examples are the Ottawa, Peterborough, and Thunder Bay CMAs, which are distinct from the rest of their regions.

Ontario Forecast Table

Source: Statistics Canada, Central 1 Credit Union. 2015 estimated, forecasts 2016 and 2017

Employment (000s), Regional Summary

Source: Statistics Canada, Central 1 Credit Union. 2015 estimated, forecasts 2016 and 2017

Labour Force (000s), Regional Summary

Source: Statistics Canada, Central 1 Credit Union. 2015 estimated, forecasts 2016 and 2017

Unemployment Rate (%), Regional Summary

Source: Statistics Canada, Central 1 Credit Union. 2015 estimated, forecasts 2016 and 2017

MLS Residential Sales (units), Regional Summary

Source: Statistics Canada, Central 1 Credit Union. 2015 estimated, forecasts 2016 and 2017

MLS Residential Average Sale Price ($), Regional Summary

Source: Statistics Canada, Central 1 Credit Union. 2015 estimated, forecasts 2016 and 2017

Residential Building Permits (units ), Regional Summary

Source: Statistics Canada, Central 1 Credit Union. 2015 estimated, forecasts 2016 and 2017

Population (000s), Regional Summary

Source: Statistics Canada, Central 1 Credit Union. Forecasts 2015 to 2017
Note: As of July 1, latest actual 2014.

Non-residential Building Permits ($ mil.), Regional Summary

Source: Statistics Canada, Central 1 Credit Union. 2015 estimated, forecasts 2016 and 2017