Toronto Economic Update

Our 2016 Regional Economic Updates are your source for forward-looking intelligence on Ontario’s economy. Presented in partnership with the Credit Unions of Ontario, the findings of our updates are based on Central 1’s Ontario Regional Economic Outlook. Scroll down this page for cross-regional data summary tables or view individual regional economic updates using the sidebar menu.

Key indicators suggest economic performance in the Toronto Economic Region (ER) has been relatively robust in 2015. Headline labour market indicators have recorded above average employment growth and lower unemployment. Housing market indicators are robust with above average growth in sales, prices, and construction. Non-residential building permits and construction have increased materially for the first time in four years.

Population growth has slowed slightly as net in-migration has declined due to less international migration though interprovincial migration has improved. Labour force growth has bounced back in 2015 and the labour force participation rate has edged up. Rapid house price increases have continued to diminish housing affordability and stimulate investment in housing assets.

The economic outlook through 2017 is for further expansion in this growth phase with employment increasing at an above trend pace and the unemployment rate falling below seven percent. Housing market activity will continue to increase, with continued growth in sales, prices, and construction. Non-residential building construction will increase with only a small breather in 2016 public activity following a spike in 2015 and engineering construction will likely expand. Population growth is seen edging higher with a reversal in the international migration trend and gains from interprovincial migrants.

A promising labour market development in 2015 has been the large gain in full-time employment after a lull in 2014. Full-time employment has rebounded four percent in 2015, while part-time employment has declined by roughly a similar amount. The implied increase in total hours worked suggests stronger overall growth than headline total employment indicates.

Most employment growth in 2015 has been in three service industries: professional, scientific and technical (PST); finance, insurance and real estate (FIRE); and transportation and warehousing. Employment growth in these industries has been partly offset by notable declines in manufacturing and public administration. These trends have prevailed for at least the past two years and are likely to continue through 2017, although public administration will probably see some growth given the new federal government’s agenda.

The main components of the PST industry are legal, accounting, engineering, architectural, computer systems, management, and advertising services. Over half the payroll jobs added in this industry over the past two years in Ontario have been in computer system design services. Advertising, public relations, legal, management, scientific and technical services have accounted for most of the rest of recent job gains. These trends are likely to continue.

The main components of the FIRE industry are credit intermediaries, securities dealers, insurance carriers, asset managers, property lessors and managers, real estate agents and appraisers, automobile and equipment rental and leasing services. Most of the jobs added in this industry over the past two years in Ontario have been in property lessors, agents, managers, appraisers and other real estate services. Insurance carriers, asset managers and securities brokers have accounted for most of the rest of recent job gains. Payroll employment among credit intermediaries, mostly banks, has declined over the past two years in Ontario. These trends are likely to continue.

Transportation and warehousing employment will be up almost 10 percent this year following an 11 percent drop last year. Despite recent variability, the longer term trend continues to rise. Recent variability could be due to sampling error in the Labour Force Survey, rather than to real changes, in which case the trend is more relevant.

Declines in manufacturing employment over the past two years have been driven by computer, electronic, fabricated metal, food, and printed products. Transportation equipment manufacturing, mostly automobiles and parts, has seen payroll employment grow recently. Manufacturing will continue to face crosscurrents. Ford’s plan to produce the Edge SUV in Oakville and GT ‘supercar’ in Markham will create jobs. General Motors’ plan to shift production of the Camaro from Oshawa to Michigan will result in job losses. Bombardier plans to cut jobs at its Toronto plant due to problems selling business jets.

Cost savings from the drop in oil prices and the competitive advantage gained from the lower Canadian dollar, along with more demand from the strong domestic economy in the U.S. will continue to work in favour of local manufacturers. One downside from the oil price drop is less demand for machinery and equipment from energy companies in oil-producing provinces and states.

Construction employment has posted a solid gain in 2015 rising nearly six percent. This is not surprising given the large increase in residential and non-residential building activity. Residential and non-residential building permits posted double-digit gains and engineering construction on transportation projects advanced.

Job growth in the Toronto ER is forecast at 1.7 percent in 2016 and 1.5 percent in 2017, compared to an estimated 2.4 percent in 2015. Forecast job growth is led by technology services, business services, real estate and financial services, transportation and construction. Gains are expected in tourism-related industries along with trend growth in education and health industries.

Some employment declines are likely in transportation manufacturing and possibly in overall manufacturing. There are signs of benefits from the low Canadian dollar on more manufacturing exports but it is not widespread. The improving U.S. economy in 2016 and 2017 should provide some additional lift. However, restructuring and consolidation by foreign-owned firms will continue.

Immigration will drive labour force growth but it will remain subdued by demographics. The participation rate is on a downward trend due to retiring baby boomers and range-bound employment of younger people and those with obsolete skills. Labour-force growth is forecast at 1.3 percent in 2016 and 1.2 percent in 2017, down from an estimated 1.6 percent in 2015. The region’s unemployment rate will trend lower through 2017 and beyond.

The labour market forecasts for the Toronto ER and the Toronto Census Metropolitan Area (CMA) are highly similar. Employment growth is slightly higher and the unemployment rate slightly lower in the CMA due to higher economic intensity. The economic region is about five percent larger in population than the CMA, which excludes Oshawa, Burlington, Clarington, Whitby, Scugog and Brock.

The high-profile Toronto housing market has led all regions with the largest average price increase of over nine percent in 2015. The two index measures for Toronto are showing gains of eight to nine percent. Toronto’s sales-to-new listings and sales-to-active listings ratios are the highest in several years, which correlates well with substantial price increases. Active listings are the lowest since the recession and the flow of new listings is only three percent higher than last year, compared to a 10 percent sales increase. Supply is an issue affecting not only prices, but at this pace, it will constrain sales.

With one of the more robust economies in Ontario, Toronto’s housing market is seen posting further gains in 2016 and 2017. Sales will climb as long as the supply response gains momentum. There is more upside to prices than forecast if listings do not respond and languish at the current low pace. The average sale price will breach $700,000 during 2016 and $750,000 during 2017 though the annual averages will be lower. New construction will also climb but it can only meet part of the market’s supply needs.

The underlying premise in our forecast is that low mortgage rates, combined with employment and income growth, will generate more housing activity, despite worsening affordability conditions and mortgage rates edging higher. The homes and buildings people want to own are in limited supply and are located on land that cannot be reproduced. As urbanization continues to intensify, land values will continue to appreciate.

In the Toronto ER, housing unit sales via the Multiple Listing Service (MLS®) are forecast to rise 6.4 percent in 2016 and 4.3 percent in 2017 following estimated growth of 8.3 percent in 2015. The average MLS® sale price is forecast to rise 8.7 percent in 2016 and 7.3 percent in 2017, following an estimated gain of 9.2 percent in 2015.
Residential building permits are forecast to increase 10.7 percent in 2016 and 4.3 percent in 2017, following estimated growth of 19.5 percent in 2015. The Toronto CMA housing forecast is highly similar to the ER forecast. Most of the uplift in residential construction is centred in multi-unit buildings in the Toronto CMA, which are up 43 percent through the first 10 months of 2015. There is upside potential in this forecast because a considerable amount of pent-up household formation accumulated since the recession seven years ago.

Renovation spending, which is larger than spending on new construction, is forecast to grow at a good clip, averaging around 7.5 percent annually in current dollars and 5.0 percent in 2007 dollars through 2017. In addition to the aging of the housing stock, renovation spending tends to increase at a faster pace when the housing cycle is in an expansion phase.

Investment in non-residential building construction in the Toronto CMA continues to rise and was up almost nine percent through the third quarter of 2015 compared to last year. The increase is spread over institutional, government, commercial, and industrial buildings. Non-residential building permits are up 22 percent on the same basis. Permit growth, an indicator of near-term investment spending, is mainly in institutional, government and industrial projects. Some examples of recently awarded construction contracts for non-residential buildings include the Milton District Hospital expansion, the GO Transit East Rail Maintenance Facility in Whitby, and the ErinoakKids’ centres in Brampton, Mississauga, and Oakville.

Engineering construction will continue in Toronto, with the utilities and transportation industries investing heavily in a number of major projects. These include Phase II of the Highway 407 extension, the Eglinton Crosstown and Sheppard Ave. East light rapid transit projects, and the refurbishment of the Darlington nuclear generating station.

Non-residential building permits in the Toronto CMA are forecast to decline about three percent in 2016, following a 22 percent jump in 2015. Higher activity is projected for 2017 and could be higher than forecast, depending on the federal government’s infrastructure initiatives.

Population growth in the Toronto CMA is forecast to grow at 1.5 percent annually in 2016 and 2017, up from estimated growth of 1.4 percent in 2015. Immigration levels will remain high and the largest source of growth, while fewer temporary foreign workers will dampen growth. Net interprovincial outflow looks to ease with Alberta’s recession. A larger net outflow of population to other regions in the province by a growing portion of retirees is expected. Toronto’s growth with remain above the provincial average and well above all other regions in the province.

The region underwent an economic resurgence in 2015 and will continue to perform strongly over the next two years.

The region leads all regions in average residential sale price increases, with 9.2 growth in 2015.

The region now accounts for nearly 47 percent of the provincial population.

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Regional Economic Update Summary: Toronto Region
2013 2014 2015 2016 2017
Labour Force (000s) 3,528.8 3,524.7 3,580.0 3,625.0 3670.0
% ch. 3.4 -0.1 1.6 1.3 1.2
Total Employment (000s) 3,240.2 3,241.1 3,320.0 3,375.0 3,425.0
% ch. 4.1 0.0 2.4 1.7 1.5
Unemployment Rate 8.2 8.0 7.3 6.9 6.7
MLS® Res. Sales 94,588 99,193 107,400 114,300 119,200
% ch. 0.9 4.9 8.3 6.4 4.3
MLS® Res. Avg. Price 529,948 573,183 625,800 680,400 730,100
% ch. 5.1 8.2 9.2 8.7 7.3
Residential Permits (Units) 40,256 35,136 42,000 46,500 48,500
% ch. 3.6 -12.7 19.5 10.7 4.3
Non-Residential Permits ($ millions.) 6,193 5,985 7,000 6,900 7,500
% ch. 3.3 -3.4 17.0 -1.4 8.7
Private Non-Res Building Permits ($millions) 5,048 4,807 5,200 5,500 6,000
  % ch. 16.7 -4.8 8.2 5.8 9.1
Public Non-Res Building Permits ($millions) 1,145 1,178 1,800 1,400 1,500
  % ch. -31.5 2.9 52.8 -22.2 7.1
Population (000s) 6,268.8 6,357.7 6,439.8 6,530.3 6,626.1
% ch. 1.4 1.4 1.3 1.4 1.5
Net Migration 61,612 53,949 43,000 51,000 56,000
Net International 87,709 80,005 70,000 73,000 77,000
Net Interprovincial -5,049 -5,007 -6,000 -2,000 -1,000
Net Intraprovincial -21,048 -21,049 -21,000 -20,000 -20,000

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

Disclaimer: Regional Economic Update: Toronto (the “Analysis”) may have forward-looking statements about the future economic growth of the Province of Ontario and its regions. These statements are subject to risk and uncertainty. Actual results may differ due to a variety of factors, including regulatory or legislative developments, competition, technological change, global capital market activity and general economic conditions in Canada, North America or internationally. This list is not exhaustive of the factors that may affect any of the Analysis’ forward-looking statements, and all factors should be considered carefully by readers and readers should not place undue reliance on the Analysis’ forward-looking statements.

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