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 - Mar 10, 2011

Alex Carrick
Government accounted for nearly half of Canada’s 2010 non-residential construction

Statistics Canada’s Private and Public Investment (PPI) in Canada publication (catalogue number 61-205-X) is a treasure chest of information on the nation’s economy.

The latest report reviews and revises capital spending in 2009 and 2010 and records intentions for 2011.

The results are based on a survey of 28,000 private and public organizations conducted between October 2010 and January 2011. The information is presented in current dollars (i.e., not adjusted for inflation).

Capital spending plans are separated into two categories, (1) construction and (2) machinery and equipment. What follows only focuses on construction.

Total dollar spending on new construction in Canada in 2011 is expected to be $240.6 billion. That will be an increase of 3.6% versus 2010. While that seems substantial, it will be a smaller increase than the year before. The 2010 year-over-year increase in new construction was 13.0%.

But to place things in perspective, total capital spending on construction nation-wide in the recession year of 2009 declined 12.7%.

2010’s 13.0% gain was helped along by a stronger housing sector. The residential component of total capital spending is consistently about 40%, split between new and renovation work.

In 2010, capital spending on residential construction rose 15.5%. The 2011 survey results show a much lower increase for housing of only 1.5%.

The public sector was a huge boon to construction spending in 2010. Infrastructure stimulus programs, spearheaded by Ottawa and embraced by the provinces and cities, deserve much of the credit.

Government construction spending in 2010 was 20.9% higher than in 2009. The dollar gain was $11.3 billion. In 2011, capital spending arising out of the public sector will stay high, but the percentage change will be minimal (+0.5%).

Areas of particular strength in public sector capital spending in 2010 were educational services (+34.3%) and health care (+24.6%). Spending in both areas is expected to decline in 2011 (-21.7% and -16.5% respectively).

Support will come from the very large public administration sub-sector. This includes spending on law enforcement facilities, town halls, roads, highways and bridges. And from utilities, which includes water treatment and sewerage work.

The public sector as a proportion of total capital spending in 2010 was 28%. That was up from 26% in 2009. In 2011, it is expected to be 27%.

The public sector as a proportion of capital spending exclusive of housing takes on a much larger dimension. Government accounted for 43% of total non-residential construction in 2009. In 2010, the public sector’s share rose to 47%, or nearly half. In 2011, it is projected to fall back to 45%.

Private sector investment exclusive of housing dropped 22.9% in the year we’d mostly like to forget, 2009. It improved only slightly (+4.2%) in 2010. The 2011 projected figure for non-residential private investment in Canada is a healthier +9.2%.

The PPI report categorizes construction capital spending by industrial sector. By far the largest of these, even ahead of public administration, is mining and oil and gas extraction.

Alberta will account for half of the mining and oil and gas extraction construction spending in Canada in 2011. The oil and gas component alone will be 25% higher than in 2010.

The +25% figure is based on survey results gathered mostly in the final quarter of last year. International oil prices were moving up then, but they weren’t showing the kind of strength seen lately due to the chaos in Libya and worries about the possibility of further supply disruptions.

Even with the latest percentage gain, the 2011 figure for capital spending on oil and gas extraction in Alberta will still fall far short of its pre-recession mega-project-boom days.

In 2008, construction of oil and gas projects in Alberta totaled $33.9 billion. The figure fell by more than half to $16.1 billion in 2009. It stayed low at $16.5 billion in 2010. Projects were cancelled and shelved. The revival of work at major Oil Sands sites will see the figure rise to at least $20.9 billion in 2011.

B.C. will account for the second largest dollar volume ($7.8 billion) of mining and oil and gas extraction spending in 2011. In B.C.’s case, the strength will be in mining rather than oil and gas.

B.C. mining capital spending is expected to climb 67.4% in 2011 versus 2010, while oil and gas extraction spending will fall 15.2%.

The province with the third largest planned spending in mining and oil and gas extraction is Saskatchewan, at $4.7 billion. Saskatchewan’s wealth of natural resources, including potash and uranium, is beginning to pay off big time. 

The next largest category of capital spending projects is utilities ($18.3 billion in 2011). At 29% of the total and $5.4 billion in 2011, this type of work is dominated by Quebec. The province has long been known for major expansions to hydroelectric capacity.

The foregoing just dips into the waters of the PPI report. There is much more to be gleaned.

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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