Construction Industry Forecasts

It has been pointed out to me that total building permits in British Columbia declined 43% between October and November last year.

I’ve been asked by some CanaData followers for my reaction and how I now feel about the B.C. economic and construction outlooks.

Let me first say that the building permit series is quite volatile. There were six months of gains in the province prior to the latest setback, according to Statistics Canada.

There are still a lot of reasons to be optimistic about B.C.

The U.S. economy is starting to record significantly better numbers in some key areas – retail sales come first to mind, with the auto sector turning in a much better performance.

The big drawback is that U.S. housing remains deeply depressed. The gradual improvement in employment (i.e., initial jobless claims were way down and more than 100,000 jobs were created in the latest month) will help to turn home building activity around, but it will still take at least half a year.

When the U.S. housing recovery does come, the impact on B.C.’s forestry sector should be dramatic. (I always worry about the softwood lumber agreement and how it is trotted out by U.S. lumber producers at the least provocation to point out violations.)

An expected mild slowdown in growth in Asia will take some of the pressure off commodity prices. Nevertheless, the outlook for mining investment remains strong. After all, gold and silver prices are at or near record highs and copper is in world-wide short supply.

Neighboring Alberta is working its way back into an energy-fueled bonanza, with the world price of oil testing $90 USD per barrel.

B.C. recorded extraordinary percentage gains in housing starts in 2010. That’s partly because 2009 was so weak.

Vancouver condo starts and Victoria home starts overall in 2010 were double their levels of the year before.

Good gains in population and still near-record-low interest rates will provide a substantial floor to housing starts this year.

The cut-back in government stimulus money will be felt across the country and institutional starts will lay low out until probably 2013. But the private sector is becoming engaged again with investment financing.

North American stock markets have turned in solid improvement and corporate profits have been very strong in many industries. A new wave of mergers and acquisitions is expected by many.

The high tech sector came through the recession in great shape. Employment in computer design systems maintained employment levels better than any industrial category in the U.S. This related to firms trying to maintain output levels with less manpower.

B.C. is a full participant in the Pacific Coast “knowledge fault line” that runs from Silicon Valley through Seattle and northward.

Office occupancy rates remain relatively high and the absence of available land means demand for space will stay strong in Vancouver.

There are good prospects for shale natural gas developments in the NE of the province and for hydroelectric power project work as well.

Aluminum prices are on a bit of a tear and that holds out promise for investment at Kitimat-Kemano.

I would like to see the proposed oil pipeline (Enbridge’s Northern Gateway) built from Alberta to the coast to supply customers along Asia’s Pacific Rim.

Canada needs a second outlet (besides the U.S.) for its Oil Sands production. My impression is that there is a lot of political support for this, but who knows to what degree the environmental lobby will be able to hold up a positive decision.

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.