The sectors of the economy that industrial construction depends on are currently under siege in Canada. There are three primary drivers of industrial investment activity: resource sector work; the automotive sector; and the rest of manufacturing. Plus there is another major sub-sector breakdown. Much of “the rest of manufacturing” is tied to housing, in terms of material components going into new housing, renovation products for existing homes and other essential and discretionary goods for one’s residence (e.g., fridges, stoves and entertainment equipment).

The housing sector in Canada is set for a correction in terms of new starts. Plus existing home sales are on the backside of the boom and this has implications for renovation work in 2009 and 2010.

The auto sector is being impacted by high gasoline prices, although these are moderating slightly with the decline in world oil prices. Nevertheless, it has become clear that significant shifts are taking place in the market away from trucks and SUVs, which use too much gas, and towards more fuel efficient vehicles. Problems in this sector are also being heightened by weak demand south of the border, which is spilling over into Canadian production.

This leaves resources. In CanaData’s August newsletter, we included a list of the 10 largest upcoming industrial construction projects. Almost all of these were in the field of resources. Coal mine work and aluminum smelter expansions were the headliners. The emerging nation effect is certainly playing a role, mainly through causing price increases for base metals, other minerals, fossil fuels and agricultural products.

It remains to be seen, however, how the slowdown in the world economy will play out in terms of commodity prices coming off their highs. This may well cause some retrenchment in investment spending plans.

I’ll write more on the specifics of the Top 10 upcoming industrial projects for posting on this blog site on Friday.

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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