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 - Sep 06, 2012

Alex Carrick
Auto Sector Labor Relations will Play a Role in Construction Outlook

In both Canada and the United States, manufacturing employment is undergoing a modest revival.

Throughout the decade of the 00s and until the middle of 2010, the number of jobs in manufacturing did nothing but decline on a year-over-year basis in both countries.

Over the past two years, however, the percentage change for manufacturing jobs (year-over-year) has been mostly positive. In the U.S., the July figure was +1.9% and in Canada, it was +1.6%.

There are several reasons for the overall improvement in manufacturing employment. The U.S. has achieved success in selling capital equipment to customers around the world. Emerging nations have placed large orders for construction machinery to build infrastructure and for agricultural equipment to improve crop yields.

The highly volatile aerospace industry has encountered bouts of stronger sales demand as the trend for more business and tourism travel has picked up since the recession of 2008-2009.

Undoubtedly the biggest contributor to better manufacturing employment, however, has been the auto sector. In the U.S., employment with motor vehicle assemblers and parts producers has risen by 165,000 jobs since June 2009, to stand near a total of 800,000.

The car-buying public has returned to showrooms across North America and is upgrading its means of transportation. Pent-up demand has been a factor in new vehicle purchases, as has been a shift to smaller more fuel-efficient models.

The car companies themselves deserve a great deal of credit. They’re now providing products that are far more appealing on a cost, safety and mileage basis. The firms may even serve as examples of what it takes to succeed in the new world order of more integrated supply chains.

Ownership change and massive debt restructuring saved two of North America’s largest producers, General Motors and Chrysler. Periods in bankruptcy protection enabled both companies to escape legacy costs in the form of pensions and medical care for former employees. The latter were largely offloaded onto other financial entities. To maintain its competitiveness, Ford was also able to restructure some of its burdensome obligations as well

According to industry expert, Autodata Corporation, U.S. light vehicle sales in August rose to 14.5 million units annualized, up from 14.1 in July and well ahead of the 12.5-million level in August of last year. (While greatly improved, sales still remain below the 16 to 17 million units achieved in the mid-00s.)

The most recent percentage increases in sales were in double digits. The jump in total units was +19.9% for August of this year versus August of last year and +14.7% so far this year versus the same first eight months of 2011.

In unit volume, General Motors has led all U.S. sales so far this year, followed by Ford, Toyota and Chrysler/Fiat.

Chrysler (+25.7%) and Toyota (+30.4%) have been the standouts in terms of year-to-date percentage gains. Toyota’s improvement results partly from an extraordinary circumstance. The company experienced several horrendous months after tsunami damage in Japan destroyed product availability last spring.

Similar sales figures in Canada are provided by DesRosier Automotive Consultants. Light vehicle sales north of the border were +6.4% in August of this year versus August of last year and +6.7% year to date.

Chrysler has the strongest growth record among the Detroit Three in Canada this year (+6.8% year to date), with Ford flat (+1.0%) and GM on the downside (-7.5%).

The ranking of sales by units in Canada, year to date, is Ford first (195,000), Chrysler second (174,000) and GM third (157,000). Toyota (122,000), followed by Hyundai (96,000) and Honda (86,000), are the best sellers among the offshore-owned brands. 

All of this is of interest to the construction industry for one major reason – what it might mean in terms of plant expansions.

A key indicator is usually the capacity utilization rate. The usage rate in Canada’s transportation sector in the first quarter of this year was an impressive 89.5%. That’s up from a rock-bottom figure of only 47.3% in the first quarter of 2009 when the recession hurt the most.

A usage figure that rises above 85% usually means firms in a sector will begin to look at new investments. Therefore, under normal conditions, the prognosis would be for a spate of new auto sector spending announcements in Canada and the U.S.

But this is where the international environment comes into play. Canadian plants are competing for business with other assembly operations around the world.

For example, right-to-work states mainly in the southeastern U.S. offer a non-union labor pool that greatly reduces wage costs. And while it’s interesting to note that U.S. and Canadian auto production is climbing, those gains pale by comparison with Mexico where labor rates drop by another large margin.

In the construction industry, the upcoming negotiations between the Canadian Autoworkers union (CAW) and the Detroit Three should be watched with keen self-interest.

More auto sector spending takes several forms: adding shifts; retoolings for new models and new model years; plus plant additions and even green-field sites. It’s important that Canada retain, and perhaps even improve upon, its share of this work.

The deadline for the CAW and its employers to negotiate new contracts is September 17.
Standard practice has been for the union to pick a target company. Once one settlement has been reached, it’s been easier to have major provisions accepted by the other two companies. This is termed “pattern bargaining”.

The Detroit Three in Canada appear to be standing firm on their wage goals. They’d like to see agreements more in line with what the United Autoworkers (UAW) union has accepted in the U.S., including a two-tier system of wages whereby new hires receive much lower compensation than workers with more seniority.

The scuttlebutt is that strike action in this round may proceed against all three major producers simultaneously.

It’s impossible to stress how important the improvement in the auto sector over the past couple of years has been for the overall economy.

Financial lifelines from several levels of government across both borders played essential roles in saving two of the majors from drowning. Nobody wants to see a repeat of that scenario. 

Relative labor peace that incorporates recognition of changing world realities would be most welcome even by parts of the nation’s business community (i.e., the construction industry) that might seem to be less immediately affected.

Alex Carrick

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


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