This year’s Top 100 numbers back up economists’ claims that B.C. is well positioned to weather any economic downturn associated with the U.S. housing crisis.
Aggregate revenues for the Top 100 companies were $122.2 billion, an increase of 8.9 per cent over last year’s tally. The surge outpaces the 6.2 per cent rise in the province’s nominal GDP. And the threshold for making the list this year inched up to $223.9 million in annual revenues, $40 million more than last year.
A glance at the companies reporting the strongest growth over the past year shows just how broad-based the momentum is for B.C.’s economy. While perennial economic stalwarts head the list – telecommunications giant Telus Corp. (T-T), the Jim Pattison Group and miner Teck Cominco Ltd. (TCK-N) – the five companies leading in growth represent five different sectors: technology, mining, real estate, retail and food. The next 10 and 20 companies bear out the trend of diversified growth.
“A strong fiscal turnaround in B.C.’s economy is a great underpinning to what’s going on right now, so it puts [B.C.] in a better position to weather what’s going on south of the border,” says Amy Goldbloom, an economist with RBC Financial Group (RY-T) in Toronto. She says that the province has recovered from the economic woes of the late 1990s to become a more attractive place to do business. Goldbloom goes on to say that, while an economic downturn stateside would hurt Canada as a whole, RBC doesn’t believe the U.S. is recession-bound, and she notes that domestic economic growth has “certainly provided a buffer” to B.C. “The domestic side is powering the economy forward.”
Complementing the province’s strong fiscal position is a construction boom (and associated economic activity) that is providing consumers with additional pocket money to spend on goods and services. Employment growth is advancing at just under three per cent in B.C., while retail sales were up more than seven per cent last year. The growth has benefited companies such as clothing retailer Lululemon Athletica Inc. (LLL-T) and electronics retailer Best Buy Canada Ltd. (BBY-N), which saw their sales rise 75 per cent and 18 per cent, respectively. The companies don’t depend solely on B.C. customers for their business, but good times here – and the ability to target demand elsewhere – have kept the cash flowing through the local economy even as a slowdown in the U.S. roils other sectors.
The companies posting the greatest losses this year are drawn exclusively from the resource and technology sectors. The majority reported in U.S. dollars, a fact that underlines the role of exchange rates in sapping the life from local companies. While some of the technology companies managed to pare their losses, the year’s biggest losers in the forestry, mining and energy sectors – Canfor Corp. (CFP-T), Lundin Mining Corp.(LUN-T) and Ivanhoe Energy Inc. (IE-T) – went deeper into the red. A similar story could be told among companies who saw revenues drop. Save for government-related ventures – Powerex Corp. and WorkSafeBC – companies posting lower revenues were involved almost exclusively in primary resources and pharmaceuticals.
Nevertheless, there are signs that B.C. is weaning itself from dependence on U.S. trade. A decade ago, Goldbloom notes, U.S. sales accounted for 70 per cent of B.C. exports. Today they account for just 60 per cent – a decline whose significance goes far beyond the 10 percentage points involved. Not only has the lowered dependence on U.S. markets cushioned the B.C. economy from the full brunt of stateside turmoil, but the diversification has given the province a new confidence. The buzz about Canada’s decoupling from the U.S. economy – which gained credence as the loonie crept up to $1.10 against the U.S. dollar last year – still rings true on the West Coast.
Companies in B.C. are developing relationships with Europe and Asia, meaning that the U.S. isn’t the only option for exporters. Wireless technology firm Sierra Wireless Inc. (SW-T), which launched a number of new products in fiscal 2007, tapped demand outside North America, boosting its revenues by 88.4 per cent – the most of any company on the list (save for Flight Centre North America, which got a shot in the arm from a U.S. acquisition by its Australian parent). Trade with Alberta and other provinces is also helping boost the B.C. economy. “If it’s a business that’s basically targeting the domestic marketplace or is selling products to the rest of Canada – for example, selling to the Alberta market – times have been very, very good,” says Craig Alexander, deputy chief economist for TD Bank Financial Group (TD-T).[pagebreak]A diversified economy – borne out by the diversity of companies on the list posting significant growth in revenues – has allowed the province to enjoy far more favourable economic conditions than Ontario, where the manufacturing sector is leading a downturn mirroring that in the U.S. “In contrast to that,” Alexander says, “the B.C. economy is in phenomenally good shape, because the domestic side of the economy is quite strong.”
That doesn’t mean the province is self-sufficient, however. Whatever construction and the housing market are doing to support the economy, the fact the province is enjoying a stable economy that’s less subject to the cycles of an individual sector than it was a decade ago shouldn’t be taken for granted – at least according to John Winters, president and CEO of the B.C. Chamber of Commerce. “Nothing stands still,” he says, noting that conditions in the U.S. remain a potent force, while currency fluctuations have the potential to sideline the resource and manufacturing sectors.
While high prices for some commodities have helped shelter some B.C.-based companies from the impact of a soaring loonie, the 17 per cent rise in the value of Canada’s dollar last year didn’t help grow the revenues of companies dealing in U.S.-denominated products. The downturn of the U.S. dollar, coupled with weaker demand from a sagging U.S. economy, has taken its toll. Small wonder that Winters voices a small note of caution when he reviews the numbers. “There are some indicators there of turning a corner.”
While the economy is in good health, growth is reaching its maximum. Patricia Croft, the chief economist at Vancouver investment firm Phillips, Hager & North, remarked in these pages last year that things couldn’t get much better, and current circumstances seem to be proving her right. Growth in GDP has slowed since its recent peak of 4.5 per cent in 2005, according to TD’s Alexander, and it’s set to slip further in the next 18 months, growing at 2.2 per cent this year before picking up to 2.7 per cent next year.
Still, this will be well above the national average of 1.1 per cent growth and second only to Saskatchewan’s projected growth of 3.2 per cent. “The strength of the domestic economy is going to moderate simply because the rate of growth we’ve been getting isn’t sustainable,” Alexander says. “So the pace of employment growth is going to moderate, retail spending will cool and . . . home sales are probably going to dip about four per cent on average from now till the end of 2009.” Moreover, since a recovery in the U.S. isn’t likely till next year, export-dependent companies will have until early 2009 before fortunes improve, according to Alexander. “All of that says growth in B.C. is going to cool down.”
The good news? The slowdown amounts to what Helmut Pastrick, chief economist of Credit Union Central of B.C., calls a “growth recession.” Times are still good and growth is still happening – it’s just not happening as quickly as it has in the recent past. While credit is tight, Pastrick expects a solution in the near future that will ease the current crisis sometime in 2009.
Yes, his forecast of growth for the province earlier this year has come off the bullish forecast of three per cent made in January – Credit Union Central’s best five-year outlook for the province since 1985 – but a quick review of the various sectors in the province suggests there’s not a lot of cause for concern. Yes, inflation (projected by TD to be 1.2 per cent, the lowest in Canada this year) and currency exchange rates offer something to worry about, especially for the forestry sector and manufacturers. But even manufacturers are doing well if one looks at those whose product is something other than wood, pulp and paper, metals, and machinery. Specialty manufacturers are actually doing quite well, with growth pegged at 16.7 per cent over the next five years.
Moreover, homes seem set to continue to rise in value, with most estimates suggesting prices will increase about nine per cent on average in the current year. This bodes well for consumer confidence, which typically correlates with home values. And with mortgage rates starting to edge down, there’s one more reason for continued optimism. As Helmut Pastrick puts it: “That’s almost always generally positive for the market.”