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Canada’s leading indicator series continued to charge ahead in December

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Alex Carrick

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Alex Carrick is Chief Economist for CanaData, Reed Construction Data’s Canadian economic forecasting and statistical service.

Economists

Canada’s leading indicator series continued to set a torrid pace in December, according to Statistics Canada. The month-to-month change was +0.8%. That’s a relatively high number historically, although it was slightly less than November’s +0.9%. Important developments in the commodities sphere are also determining the pace at which Canada/'s economy will expand.

Canada’s leading indicator series continued to set a torrid pace in December, according to Statistics Canada. The month-to-month change was +0.8%. That’s a relatively high number historically, although it was slightly less than November’s +0.9%. In the four years prior to the onset of the recession in October 2008, the month-to-month change in the index averaged +0.4%. Since the broad economic recovery began in the summer of 2009, the index change has been double that value (i.e., +0.8% or more) in 10 of the 30 months. The last two months, December and November, accounted for two of those ten exceptional increases. Eight of the 10 sub-indices moved higher in December, led by manufacturing. Within manufacturing, the average workweek in hours (+0.8%), new orders for durables (+1.0%) and the shipments-to-inventories ratio (+0.02 points) recorded gains. Other durable goods sales under the retail sub-category also pulled ahead (+0.7%). Due to the strength in home starts, the housing sub-index (+0.8%) surged ahead as well. The trend was also upwards in three broader-based series – business and personal services employment (+0.4%), the money supply (+0.7%) and the U.S. Conference Board’s leading indicator (+0.5%). Only two sub-indices recorded declines in the latest month, furniture and appliance sales (-1.1%) and Toronto Stock Exchange (TSX) prices (-1.6%). The resale housing market has been a little less active of late and problems on the TSX have been based mainly in commodities. The Bank of Canada’s total commodity price index shows a leveling off to where the series was in late 2005 through the summer of 2007. That was before it peaked in mid-2008. Energy and mining stocks drive the majority of transactions on the TSX. The two biggest news items of late on the energy front have featured oil pipeline projects. The Democrats in Washington have once again rejected an early start on TransCanada’s Keystone oil pipeline to the Gulf Coast. The Republicans tried to force President Obama’s hand by tying their support for a payroll tax cut to quick approval for Keystone. After some adjustment to its proposed route, TransCanada is welcome to apply again and go through the usual lengthy environmental hearings process. Frustration with the direction of recent events has led our Prime Minister, Stephen Harper, to reiterate that Canada must find other foreign markets for our oil. He will be traveling to China next month and supplier-buyer relationships in the energy sphere are sure to come up for discussion. Hearings into Enbridge’s Northern Gateway oil pipeline project have just begun in British Columbia. There are expected to be hundreds of submissions over the next two years as the proceedings go on the road across the province. Firms operating in Canada also have natural gas they’d like to sell to Asian partners. In the meantime, if one is wondering what other resource-based economies are doing with their raw materials, one need only check out Australia. Chevron’s Gorgon LNG (liquefied natural gas) project off the north-west corner of Western Australia is the biggest resource undertaking in that nation’s history. It will develop undersea natural gas fields and supply LNG to customers on Australia’s mainland and throughout Asia. It’s located in a Class A nature reserve on Barrow Island. Provisions have been put in place to preserve vegetation unique to the region and coral reefs near the drilling and docking facilities. The project has broad support among the parties in Australia’s legislature. The importance to the economy over the next 40 years is well recognized. The estimated construction cost upon completion will be over $40 billion. The building phase began in 2011 and will wrap up in 2015. Peak construction employment will be close to 10,000 jobs. China, India, Japan and South Korea have already signed on as customers. In other TSX news, a former “darling” of investors, Research in Motion (RIM), has replaced the executives at the top of the company. Founders Mike Lazaridis and Jim Balsillie are being replaced by Thorsten Heins, who has been with the company for four years after moving over from Siemens, and by Barbara Stymiest, who at one time was in charge of TSX Group. There is speculation that behind-the-scenes, Prem Watsa of Fairfax Financial, played a role in the corporate shake-up. Fairfax has become one of RIM’s largest shareholders. Mr. Watsa has been named to the Board of Directors. Last year, RIM lost 75% of its share value. Investors would dearly love to see the company become this year’s turnaround story. Another recent headline suggests a final observation about playing the stock market. It’s a funny thing about corporate “darlings”. One should always keep a skeptical mind and not just accept at face value what is being said about a company. In Toronto, three former top executives of Northern Telecom (a.k.a., Nortel Networks) are now on trial for fraud. It’s alleged they conspired to present false financial information to pump up their own bonuses. When the true fiscal results emerged, the equity value plunged and thousands of large and small shareholders were left with little to show for their faith in a formerly iconic Canadian company. Alex Carrick

Find Canadian construction-related economic articles in Canadian Construction Market News and in the Economic Outlook section of Daily Commercial News.

by Alex Carrick

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