A Guide to the BC Economy and Labour Market
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  Overview of the Services and Goods Sectors  

Goods or services: what drives economic growth in BC?

Overview of The Services and Goods SectorGiven the role that resource-based goods industries played in the development of BC's economy-and the role they still play in some communities-it's not surprising that many people view the goods sector as the engine that drives the provincial economy. However, as the province has become increasingly dependent on service industries as a source of employment and economic growth, the degree to which goods industries determine our economic fortunes has been reduced.

The service sector helps keep the economy on an even keel

Economic growth in the goods sector tends to be somewhat volatile. These industries experience periods of relatively rapid growth and decline in response to changing world demand for commodities such as wood, paper, metals, gas and other resource products.

Stability in the service sector helps offset some of the volatility in goods industries


Stability in the service sector helps offset some of the volatility in goods industries.

Data Source: Statistics Canada

The service sector can be thought of as a buffer that insulates the economy from some of the volatility in the goods sector. In both 2001 and 2008, growth in service industries kept the economy from slipping into a deep recession despite significant contractions in the goods sector.

This dependence on service industries isn't always to our benefit. Although less reliance on resource industries means we are not as likely to feel the full effect of downturns in world markets for resource-based products, it also means that when these markets are booming, the benefits are not as noticeable either. A highly service-oriented economy will usually experience steady, but slower, growth than one that is more reliant on volatile resource industries.

Recent economic events highlight the stabilizing effect of service industries on the economy

Recent economic events highlight the stabilizing effect the service sector has on the province's economy. In the fall of 2008, it became evident that most major economies were headed into a recessionary period, as a crisis that originated in the European and US financial sectors spread to other parts of the world, dragging many countries, including Canada, into an economic downturn.

US housing starts dropped to their lowest level in more than 50 years...


US housing starts dropped to their lowest level in more than 50 years.

Data Source: Statistics Canada

The effects of the financial crisis that started in the US and overseas were felt in BC. The US housing market was particularly hard hit and housing starts south of the border plunged to their lowest level in more than 50 years. This greatly reduced US demand for BC lumber. The US is the province's biggest trading partner, and lumber and other forest products account for about a third of the total value of goods exported to the US from BC.

...and BC's exports to the US have plunged


BC's exports to the US have plunged.

Data Source: Statistics Canada

The forest sector was already struggling prior to the autumn of 2008. In addition to generally weak market conditions, the mountain pine beetle epidemic had devastated forests in the Interior, while Coastal mills were facing other challenges. Events in the US, a major market for BC's lumber products, only served to make the situation worse.

With the Canadian economy in a recession, foreign demand for BC lumber products falling, and consumer confidence declining, other industries saw business drop off. GDP in the province's goods sector shrank 4.3% in 2008, and double-digit declines were recorded in logging (-18.2%), fishing (-16.2%) and manufacturing (-10.5%)10. In the past, a decline of this magnitude in the goods sector would almost certainly have resulted in a significant downturn in the BC economy. It shrank in 2008, but only marginally, because service sector growth (+1.7%) was almost, but not quite, strong enough to keep BC out of a recession.

This is not the first time this has occurred. North American economies went through a somewhat rocky period at the beginning of the decade, when world markets for many products such as wood and paper softened at the same time that high tech industries went into a freefall. Although BC's forest sector was particularly hard hit, the economy continued to grow, but at a slower-than-usual pace, in 2001.

The service sector isn't immune to economic slowdowns

Although the service sector is not as volatile as goods industries, it is not immune to recessionary conditions. During most of 2009, the Canadian, US, and other economies have remained in recession, and many economic indicators for service industries have been weak or declining. With goods industries continuing to struggle and the service sector losing momentum, it is unlikely that service sector growth will have a similar counterbalancing effect in 2009.

  1. This includes wood and paper production, as well as other industries, not all of which are resource-based. 

A Guide to the BC Economy and Labour MarketA Guide to the BC Economy and Labour Market