Regional Economic Outlook Summary: Toronto

Employment growth in the region is forecast at 1.5 percent in 2015 and 1.7 percent in 2016, compared to 0.3 percent in 2014.

The Toronto region’s unemployment rate has steadily declined since the depths of the recession, from a high of 9.4 percent in 2009, to a projected low of 7.5 percent in 2016.

Population growth in the Toronto region will continue to lead the province, as the region adds another 187,000 residents over the next two years.

Economic growth in the Toronto Economic Region (ER) slowed in 2014 and faster growth will depend on a recovery in exports driven by higher U.S. growth and a depreciated Canadian dollar. Lower oil prices will lift consumer spending and business profits. The economy will experience a temporary boost from the 2015 Pan Am–Parapan Am Games but still grow around trend in 2015 though above trend in 2016 when the positive external impacts are more fully realized.

Key economic indicators were mixed in 2014 led by considerably slower employment growth. Employment was rising robustly in 2013 but stalled and trended lower until the fourth quarter of 2014. For the year as a whole growth came in at 0.3 percent compared to 3.5 percent in 2013.

Most of the employment weakness was in the retail and wholesale trade and the transportation and warehousing industries accompanied by declines in manufacturing and government services. Industries gaining employment were finance-insurance-real estate, professional-scientific-technical, education, health, and accommodation-food services.

Retail sales are on pace to expand at their fastest clip since the recession at about 5.5 percent in nominal terms and 4.2 percent inflation-adjusted during 2014 assisted by spending on new vehicles and housing-related goods. This growth seems at odds with the estimated 1.2 percent employment decline occurring in 2014 but the retail industry continues to adapt to more American chains coming into Canada, expanding e-commerce, and the rise of discount retailers.

Residential real estate in Toronto remained a mild seller’s market in 2014 with rising sales and prices. Inventory of freehold properties remained at historic lows and average days on the market fell. Most of the price pressure is in the more land-intensive single-detached and townhouses than in apartment condominiums. The apartment condominium market is more balanced because developers released inventory and investors listed more units for resale.

Housing starts were down 13 percent in 2014 though apartment condominium starts were down about 20 percent. A downward supply adjustment is underway in the apartment condominium market which will extend into 2015. Toronto’s rental market will remain supply-constrained.

Non-residential building construction is roughly even with 2014 with a large number of commercial buildings under construction carried over from 2013. Engineering construction is likely higher due to the various transportation-related projects underway in the region, such as the $83 million expansion and improvement project for Highway 427 in the Greater Toronto Area and the York Viva Bus Rapid Transit at $261 million.

Manufacturing will continue to face crosscurrents. On the positive side, Ford’s plan to add 1,000 jobs at its Oakville assembly plant increasing the total employment at the facility to more than 4,000 by the end of 2014. Closings such as the Automodular Corp. plants in Oakville and Unilever’s Brampton factory by March 2016 highlight the ongoing challenges facing the industry.

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

Employment in the region’s large finance-insurance-real estate industry will likely grow near its long-term trend annual rate of two percent. Productivity enhancements from technological innovations and company consolidations will limit employment growth.

Increased tourist travel from outside the country will continue to lift the accommodation-food services industry. All signs point to faster growth in 2015 and 2016 due to favourable external circumstances plus the boost from the 2015 Pan Am Games.

The region’s significant information-cultural-recreation industry has struggled since the recession. Employment has flat-lined since 2011. Additional cuts at the Canadian Broadcasting Corporation are coming over the next two years and Bell Media will reduce its workforce by 120 at its Toronto television operations. Reductions are occurring in the news print sector as well.

Job growth in the Toronto ER is forecast at 1.5 percent in 2015 and 1.7 percent in 2016, compared to 0.3 percent in 2014. Forecast job growth is led by retail and wholesale trade, professional, scientific and managerial services, and health services. Employment will continue to grow but much more slowly in the finance-insurance-real estate and construction industries.

Immigration will drive labour force growth but it will be dampened by net out-migration to other places in Ontario and Canada and by a declining participation rate 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 2015, up from an unusually low 0.1 percent in 2014. It follows that the region’s unemployment rate will remain elevated, declining only slightly to 7.8 percent in 2015 from 8.0 percent in 2014.

The labour market forecasts for the Toronto ER and the Toronto Census Metropolitan Area (CMA) are highly similar. The Toronto ER is about five percent larger in population than the Toronto CMA. The Toronto ER includes Oshawa, Burlington, Whitby, Clarington, Scugog and Brock, which the CMA does not.

Population growth in the Toronto CMA is forecast to slow slightly to 1.4 percent annually through 2016 from 1.6 percent in recent years. Immigration levels will remain high and the largest source of growth while the non-permanent resident category is less predictable and more volatile. The net interprovincial outflow looks to ease with Alberta’s slower growth outlook. A larger net outflow of population to other regions in the province by a growing portion of retirees is expected. Population growth for the Toronto ER is forecast rising to 1.5 percent in 2016 with the Halton and York areas growing faster than the region.

Housing sales and prices in the Toronto Real Estate Board are forecast to continue rising through 2016, driven by the region’s rising population and employment but dampened by affordability and federal housing policy restraints. Residential unit sales are forecast to increase approximately two percent per year through 2016, down from 4.9 percent in 2014. The average sale price is forecast to rise approximately five percent per year, down from 8.2 percent last year.

The residential real estate market In Mississauga is forecast to remain a seller’s market in 2015 but soften modestly to a balanced market in 2016, especially in the luxury segment. The market in the affluent community of Oakville is expected to remain robust through 2016. Markets in the Durham region will remain more affordable than other parts of the GTA, a trend that will continue to drive demand.

Housing construction in the Toronto CMA slowed in 2014 following the surge from 2010 through 2012 and subsequent inventory buildup in apartment condominiums. New construction is now declining and is likely to stabilize in 2015. Residential building permits (dwelling units) are forecast to edge up four percent in 2015 and six percent in 2016 following an estimated 13.9 percent drop in 2014. The outlook is similar for the Toronto ER, although building intentions are likely to remain on strong growth trend in Oshawa.

Business investment expenditures in Toronto are forecast to remain on a strong growth trend over the next two years. The utilities and transportation sectors are investing heavily in a number of major projects, including the Eglinton LRT, Enbridge’s natural gas pipeline, the Highway 407 extension in west Durham and the refurbishment of the Darlington nuclear generating station. Private sector investment in non-residential building construction, mostly retail and office, is forecast to see modest gains.

Government investment spending will remain low as the senior governments restrain expenditures to achieve balanced budgets and the recent boost in building for the 2015 Pan Am Games passes. Various health, education, and public building construction are ongoing.

Non-residential building permits in the Toronto ER are forecast to increase 7.3 percent in 2015 and 5.3 percent in 2016 following a slight rise in 2014. The Toronto CMA will mirror these gains.

Population growth in the Toronto CMA is forecast to edge up slightly to 1.5 percent in 2016 as net in-migration rises. Toronto’s growth with remain above the provincial average and well above all other regions in the province.