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CanaData’s October Construction Starts and Remembering Planned Obsolescence with Some Fondness

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Alex Carrick

Positions:
Alex Carrick is Chief Economist for Reed Construction Data. He specializes in economic forecasting and statistical services.

Economists

Industrial starts have become a non-factor in overall construction activity in Canada. They are going to amount to less than two million square feet in 2009, which is less than one good-sized shopping mall when times are better. How did industrial work come to such a sorry pass?

The pattern of CanaData’s construction starts statistics in October was an almost exact repeat of what it has been throughout all of this year. Privately-funded work is nowhere to be found and publicly-funded work has moved to the forefront. Nine of the Top 10 projects were either institutional or engineering. And the remaining project was also for government, even though it is categorized as commercial – Hamilton City Hall renovations.

Total non-residential building starts so far this year, with only two months remaining, are -44% on a square footage basis. Interestingly, the decline in residential starts is a very similar -45% in units, -43% in square feet and -44% in dollars. Some renovation and alteration projects have helped to keep the dollar volume (-27%) of non-residential building starts less negative than for square feet.

Commercial starts are down by about half this year both in terms of square feet and dollars. Industrial starts in square footage are almost 80% below last year’s level. This leads into an important observation. Industrial starts have become a non-factor in overall construction activity in Canada. They are going to amount to less than two million square feet in 2009, which is less than one good-sized shopping mall when times are better.

Industrial construction has become a “non factor”

How did industrial work come to such a sorry pass? Some would blame the rise in value of the Canadian dollar. But both the U.S. and Canada have been losing manufacturing jobs at a cascading rate to production facilities in low-labor-cost emerging nations.

One might also look to outside societal forces that have come into play. Specifically in the auto sector, for example, there has been a long-term move towards better quality product. This has arisen partly for safety reasons and partly due to improved design processes and material usage. It has also been forced on domestic manufacturers by the foreign competition. But what are the implications?

Cars are staying on the road longer. With penetration about as deep as it can get – i.e., the number of cars per family – this means that demand for new cars can only be restrained versus earlier decades. Detroit carmakers used to be associated with the notion of planned obsolescence. This has now been thrown overboard by the auto industry. By the way, in the electronics field, where safety is not an issue, planned obsolescence does still seem to play a big role.

New extended vehicle longevity means a reduced contribution to overall economic growth from assembly and parts operations in North America. By way of contrast, China, India and other industrializing nations are growing so fast partly due to the elevation in the car-driving proportions of their populations. To reinforce this point, China’s imports of oil are near their all-time record high.

Institutional and engineering

It’s in the two mainly publicly-funded type-of-structure categories – institutional and engineering – that starts are holding up much better. Institutional starts in October of this year were +47% on a square-footage basis versus October of last year. They are -11% in square feet and only -3% on a dollar-volume basis year to date in 2009 compared with the first ten months of 2008.

Engineering starts, which are only measured according to dollars, are -21% January through October 2009 versus the same period last year. Finally, the range of institutional and engineering projects is also quite diverse, running the gamut from university and community college facilities to roadwork, sewers and watermains, libraries and national defence installations in the latest Top 10 list. This pattern of the public sector proceeding with “stimulus” projects while the private sector holds back is likely to continue at least into the first half of next year.

Alex Carrick

Find Canadian construction-related economic articles in Canadian Construction Market News and in the Economic Outlook section of Daily Commercial News. Mr. Carrick also has a lifestyle blog that can be reached by clicking here.

by Alex Carrick

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