This is a post from Alex Carrick's blog that covers the Canadian construction industry.

Since 1985, Mr. Carrick has held the position of Canadian Chief Economist with Reed Construction Data's CanaData, the leading supplier of statistics and forecasting information for the Canadian construction industry.

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Construction Industry Forecasts

Notes from Alex Carrick - Apr 22, 2009

Alex Carrick
2009 Investment Spending Intentions by Canadian Business Owners and Government Agencies

New Construction to Fall 4.7% in 2009 versus 2008

There are lots of interesting numbers from Statistics Canada’s latest survey of owners concerning their investment spending plans. This information is published in a report entitled Private and Public Investment in Canada, Intentions (catalogue number 61-205-X). The PPI survey is how it is often referred to in its shortened form.

The survey samples nearly 30,000 businesses and government bodies. The latest PPI was conducted between October 2008 and late January 2009. Therefore, it does not include the infrastructure program as set out in the recent federal budget.

It is not often that the new construction current-dollar figure declines in the latest year versus the previous year. However, that is what owners are saying will happen in 2009. Total spending on new construction will drop from $231 billion in 2008 to $220 billion this year, which is -4.7%.

By Owner Categories

The greatest year-over-year percentage decline (-55.6%) will be recorded by the accommodation and food services sector. Accommodations (i.e., lodgings) will take more of a hit than food services. Regionally, British Columbia will experience the sharpest drop, followed by Ontario, Alberta and Québec.

Mining and oil and gas extraction investment will also be down substantially (-26.9%). This is no surprise, given the collapse in world commodity prices. This is where Alberta’s pain is most exposed. Energy investment in that province will fall from $31.7 billion in 2008 to $22.9 billion this year. This may well understate the decline that is looming.

An important category with respect to employment is retail trade. New bricks and mortar construction in this category is expected to be down by 10.3%. Retail activity levels will suffer along with weaker consumer spending throughout the economy in the recession. As a result, the retail investment decline is generalized across the country.

It should be pointed out that the news about declining retail investment had apparently not reached some upstream players at the time of the survey. For example, firms in wholesale trade said that they will be increasing investment spending by 9.5% this year and transportation and warehousing firms gave a +19.7% response. The latter, however, includes a non-retail-related increase for transit and ground passenger transportation.

It is interesting to note that manufacturers were not nearly as downbeat as might have been expected based on media reports about layoffs. Manufacturers expect to undertake only 2.5% less new construction in 2009 than in 2008. The decline in value of the Canadian dollar may have helped to buoy optimism about export sales potential. It also should be acknowledged that manufacturing investment in 2008 was a weak base year.

Investment by office-based sectors is somewhat mixed, with finance and insurance (+15.4%) expecting an increase, but information and cultural industries (-2.1%), real estate, rental and leasing (-6.0%), and professional, scientific and technical services (-18.3%) all expecting declines. The net effect is a rather poor outlook for office building construction.

Categories with percentage increases are mainly in the public sector. Utilities indicated a +5.2% investment spending year. Some of this will be in electric power, but most is targeted for water and sewage systems. And remember, this was before the federal budget with its emphasis on infrastructure projects. Health care and social assistance owners plan +5.9% more investment spending. Public administration came in at +13.4%. But educational services was essentially flat (-1.1%).

As a final note, the investment in housing figure (-1.8%) probably vastly understates the decline that will transpire as this year progresses. The moderate figure reflects housing starts that continued to be strong almost through to the end of last year. It also incorporates an almost 50% share for renovation spending, which will hold up better than new spending in this category.

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.


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