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 - Dec 22, 2011

Alex Carrick
Canada stands firmly in the middle of the road as it enters 2012

I’m not sure what T. S. Eliot would have thought about the matter, but 2011 is closing out with neither a bang nor a whimper.

Based on the difficulty of prognosticating over the past couple of years, the author of “The Waste Land” would probably have been glad he was a poet and not an economist.

It’s interesting to note, though, that the title of his most famous work certainly could have been applied to much of the world’s financial sector in the most recent recession.

It also threatens to have meaning for Europe, if it can’t get its debt problems in order in 2012.

In Canada, most of the recent data series are yielding results that are in the mid-range of historical patterns.

The results are neither bullishly high nor bearishly low.

For example, retail sales have been steadily increasing, but they haven’t been impulsively buoyant.

In the latest month, October, the value of merchandise sold by shopkeepers was 4.4% higher than at the same time last year.

A year-over-year sales gain of +5% is the “norm”. In the U.S., through all of 2011 so far, retail sales have been +7% or higher.

That’s in a country where a great deal more fuss has been made about the need to scale back “reckless” spending than in this country. It just goes to show how difficult it is to rein in people’s wants and desires.

The inflation rate in Canada (+2.9%) is a little faster than we might like, but it’s still within manageable bounds. The lesson seems to be that central bankers only get truly alarmed about price hikes when they rise above 4.0%.

The “core” inflation rate, which omits highly volatile food and energy components, is almost exactly on target at +2.1%.

Housing starts in the latest month (181,100 units annualized) dropped back to where they are more sustainable, in the opinion of most analysts. They rose above 200,000 units several times in the summer and early fall.

Capacity utilization rates in the country – both for total industry and for manufacturing –  have returned close to normal, slightly over 80%.

Motor vehicle sales have recovered about half of their peak-to-trough decline, although it’s been entirely thanks to the “vans, truck and buses” category, since passenger car sales remain flat and depressed.

The international price of oil is near $100 U.S. per barrel, well down from several previous highs (in 2008 and earlier this year), but also a big improvement versus its most recent low point in 2009.

Even the price of gasoline has settled down somewhat. This past summer, it was +30% year over year, but it has moderated to less than half that increase at present.

There are some exceptional anomalies in the economy that should be mentioned, particularly since they will continue to influence events when the calendar flips over into January 2012.

Interest rates continue to be remarkably low. The Bank of Canada’s 1.00% overnight rate won’t likely be seen again for decades, once it begins an upward shift.

A figure between 3.00% and 3.50% is considered neutral (i.e., neither too stimulatory nor too restrictive) under normal circumstances.

Some regions of the country are doing better than others. For example, year-over-year retail sales gains in Saskatchewan (+10.6%) and Alberta (+10.4%) have been exceptionally strong.

This is just one demonstration of how provinces rich in resources – in the West and in parts of the East (e.g., Newfoundland and Labrador) are outstripping their industrialized counterparts in the centre of the county.

Year-over-year retail sales gains in Quebec (+1.9%) and Ontario (+2.6%) weren’t nearly as impressive. If inflation is factored in, those two provinces didn’t experience actual volume gains at all.

These kinds of statistics are emblematic of the population shifts going on in the country.

Immigrants are increasingly choosing to locate near mega resource construction projects and our fellow Canadians are moving to where the jobs are more assured.

At the same time, however, a surge in condominium construction has been surprising just about everyone, except the developers themselves, in Vancouver and Toronto. While it’s great to see the forests of construction cranes, one has the sense the industry may be headed for an abrupt adjustment. 

The major negative for Canada at the moment can be found in the merchandise trade data. In the latest month, Canada again recorded a deficit. The nation used to be able to count on a $40 to $80 billion annualized surplus every month.

A little math reveals an astonishing and perhaps not widely known feature about the Canadian economy.

Goods exports comprise nearly 30% of Canada’s gross domestic product. 72% of our exports go to the United States. (By the way, that figure was 82% ten years ago.) Therefore, 20% of the total output of the country is destined for consumption south of the border.

While it is important that we align more of our foreign sales towards emerging nations – especially since they so dearly want our raw materials and intermediate products – it’s also obvious Canada remains highly dependent on the U.S. economy.

On that score, the news is becoming increasingly upbeat. It appears the U.S. housing market has finally found a firmer base from which to send out reconnaissance missions. 

After spending a long time becoming acquainted with a deep and scary bottom, both the new homes and resale housing markets are heading ever so slightly towards improvement. Rental market demand has been leading the way.

U.S. retail sales growth year over year has been stronger than in Canada for much of this year, with vehicle sales (17% of the total) picking up faster there than here.

U.S. employment is breaking out of its chains. November’s employment number, including net new positions plus revisions to earlier months, was one-quarter of a million higher than as originally reported for October.

And the latest initial jobless claims number at 364,000 for the week ending December 17 was the lowest since early in the recession of 2008-2009. That’s very positive for future job-growth prospects.

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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Read Other Recent Alex Carrick Posts

05/14 - Economic Nuggets - May 15, 2012
05/11 - Canada Rode a Second Consecutive Month of Strong Job Gains in April
05/04 - U.S. Employment Rose by a Mediocre 115,000 in April
04/27 - U.S. GDP +2.2% in Q1 2012 and Alberta led Canadian Provinces in 2011
04/18 - U.S. Inflation Low in March; Canada’s Central Bank Looking to Raise Rates
04/12 - Canada’s Trade Surplus in February Declined but Business is Optimistic
04/03 - A Tale of Two Budgets
03/29 - A strong year for new construction investment intentions in 2012
03/21 - Leading Indicator Series Add to Good News about the U.S. and Canadian Economies
03/06 - Three key trends, more forays into high-tech and the importance for construction
02/29 - Two important sources of strength: share prices and non-residential construction
02/22 - Home resale market may be picking up in the U.S. while flattening in Canada
02/16 - Good news on U.S. housing and employment is positive for Canada as well
02/08 - Home starts and job levels diverge in Canada and the U.S.
02/03 - Canada’s labour market flat in January but U.S. on a roll
01/23 - Canada’s leading indicator series continued to charge ahead in December
01/12 - 2012 holds promise but there’s no denying the uncertainty (part 2)
01/11 - 2012 holds promise but there’s no denying the uncertainty (part 1)
01/04 - How stock prices have performed depends on the timing of the data points
12/14 - Trade issues climb the agenda in both Canada and the U.S.

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