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Pickup in non-residential building should bolster construction job market

0 268 Market Intelligence

The 5.4% increase in total building permits in April was well above the market expectation (-2.0%), due in part to a surge in institutional construction spending intentions.

The 5.4% increase in total building permits in April was well above the market expectation (-2.0%), due in part to a surge in institutional construction spending intentions.

But a closer look at the type of permits issued over the past few months indicates that the composition of construction investment appears to be changing.

Consistent with what has happened in previous recoveries, residential construction, although still strong, is losing some of its momentum. At the same time, non-residential building appears to be gaining strength.

The factors contributing to the moderation in housing demand include rising mortgage interest rates, higher house prices and a decline in pent-up demand.

Turning to business non-residential construction, after-tax corporate profits and a rise in industrial capacity utilization could translate into stronger private sector non-residential building during the remainder of 2010 and into 2011.

The jump in institutional building plans in April suggests that private sector construction will be augmented by a surge in public sector building in the second half of 2010.

As the chart illustrates, the strengthening in total building activity caused by increased residential work early in 2009 rapidly translated into a pickup of employment in residential construction.

However, because non-residential building did not contract as sharply as did residential ground-breaking, employment in the non-res sector was not as severely impacted by the downturn.

Fuelled by the rebound in residential building and a strengthening in non-res construction, total construction employment has increased by 77,000 over the past 12 months and now stands 50,000 below the record high reached in September 2008.

Looking forward, strong year-to-date growth of building permits in Nova Scotia (+68%), Newfoundland and Labrador (+59%), British Columbia (+50%), Alberta (+48%), Ontario (+46%), Quebec (+41%), Saskatchewan (+26%), Manitoba (+25%) and PEI (+18%) should cause total construction employment to trend steadily higher through the second half of 2010 and into 2011.

Total building permits vs employment in
residential and non-residential construction
Canada
Data source: Statistics Canada/Chart: Reed Construction Data – CanaData.

by John Clinkard

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