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.

Go to Alex Carrick's blog home

Construction Industry Forecasts

Notes from Alex Carrick - Apr 14, 2011

Alex Carrick
Keeping up with world-wide economic events takes focus

The most recent best news has concerned U.S. retail sales. In March, they were +7.1% year over year on an actual basis. On a three-month moving average basis, they were +8.1%.  A figure +5.0% or higher is good news as long as year-over-year inflation is +2.0% or lower. The difference means real consumer spending of +3.0%, a strong base for the overall economy.

The outstanding sectors in U.S. March retail sales were autos and parts (+10.0% actual and +15.3% smoothed) and non-store outlets (+12.4% actual and +14.0% smoothed). The latter category is particularly interesting to follow since it encompasses cutting-edge Internet sales.

Some of the other news lately hasn’t been quite as favorable. U.S. initial jobless claims in the week ending April 9 climbed back over 400,000 after spending most of the previous two months below that figure. At a level of 412,000, net jobs are still being created, but not quite as quickly.

During the recession, the number of first-time unemployment insurance seekers each week was higher than half a million. That’s the benchmark figure usually taken to mean the number of people being newly released from jobs is a match for those being newly hired. A figure of 400,000 on average for a month corresponds with about 100,000 net new jobs being created.

The initial jobless claims numbers are broken down regionally. It was a good sign that one of the states with the largest decreases was California (-8,095). Two other big-population states, Texas (-2,913) and Florida (-1,731), also had significant declines in the number of first-time jobless. 

In Canada, new motor vehicle sales in February were a disappointment. The month-to-month change in unit sales, seasonally adjusted, was -0.6%. The year-over-year change was -5.4%.

Passenger car sales in units climbed 0.4% month to month while truck, van and bus sales fell 1.5%. That left passenger car sales -12.6% year over year and truck, van and bus sales +1.2%.

In the car-manufacturing province of Ontario, month-to-month sales were +1.4%, but that still left them -3.9% year over year. British Columbia was the standout province for motor vehicle sales. Its latest month-to-month change was +3.0%, helping to raise the year-over-year figure to +3.8%. B.C. was the only province to register a year-over-year gain in new vehicle sales.

Several factors will combine to dim the short-term outlook for the motor vehicle sector. Aftermath effects of the Japanese earthquake and tsunami disaster – through power shortages and transportation bottlenecks – are playing havoc with the auto parts supply chain.

The assembly operations of some Japanese auto firms are having to shut down for a while. Preferred methods for reducing production are to bring forward maintenance shutdowns, cancel overtime and ask workers to take vacations, sometimes without pay, in order to avoid layoffs.

North American auto production as a whole is not as dependent on Japan-produced parts as might be supposed. Many parts for Japanese assembly operations in North America are either made by domestic firms or by Japanese parts firms that undertook investments to locate here.

A second factor impacting auto demand will be the price of gas. At over $1.20 CAD per litre in Canada and nearly $4.00 USD per gallon in the U.S., many potential new car buyers may choose to delay their decision until the direction of gas prices becomes clearer. Or, given that the higher price at the pump will leave them with less money in their wallets each month, they may opt for a cheaper smaller new car that’s lighter on the gas or for a less-expensive used motor vehicle.

Higher gas prices work to slow growth in the world economy in several ways. Consumers are inclined to become more cautious about all their outlays. Also, expenditures on gas take cash away from other purchases. Plus there is another factor that is important in developing nations.

To dampen civil unrest, a number of the world’s poorer nations subsidize gas and heating oil prices on behalf of their citizens. When the world price of oil rises dramatically in an unexpected way, those governments are left scrambling to find the extra money to continue their subsidies.

Their budgets are thrown off course. Deficits rise, leading to a greater need for borrowed funds. This is usually achieved by raising interest rates. In turn, the higher rates are a macro-economic reason to lower expectations for world-wide economic growth. India, Indonesia, Malaysia and Thailand are four countries well-known for heavily subsidizing gas and other fuel prices.

The U.S. dollar was strongest versus an array of international currencies in March 2009. The first quarter of 2009, after October 2008’s stock market collapse, was when the world financial crisis came to a head. Investors everywhere sought shelter in the world’s one true reserve currency.

Since then, the U.S. dollar has fallen 17% versus a trade-weighted basket of currencies. That understates the strain on Canada’s currency. The past two years, from March 2009 to the present, has seen an almost one-third appreciation in the value of the loonie versus the greenback.

The U.S. Census Bureau publishes statistics on trade with other countries. Canada remained the number one trading partner of the U.S. in 2010 with 16.5% of the total, combining both goods exports and goods imports. However, China wasn’t that far behind, at 14.3%. Mexico (12.3%) occupied third position. Japan (5.7%) and Germany (4.1%) rounded out the Top Five.

Number-one Canada stayed especially strong as a destination for U.S. exports. Almost one-fifth (19.5%) of U.S. goods exports made a beeline north in 2010. That compared with 12.8% going to Mexico and 7.2% destined for China. Actually, the size of the Chinese percentage share may be a little attention grabbing. The nature and degree of U.S.-China trade isn’t as one dimensional (i.e. flowing only from east to west) as many commentators and politicians often portray it to be.

On the subject of goods imports, China is the major supplier to the U.S., now accounting for 19.1% of the total. Canada, which used to be number one, now ranks second at 14.5%. Mexico (12.0%), Japan (6.3%) and Germany (4.3%) hold positions three through five. These numbers are all crucially influenced by the currency values of the loonie, peso, yuan, euro and yen.

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.


RSS Feed

» back to blog home

Member Comments

Post Your Own Comments 
» Not a member? Register now to become one. Otherwise, login to post your comments on this article.

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
12/22 - Canada stands firmly in the middle of the road as it enters 2012

click here to update your log-in and member information

click here to maintain your company profile & view metrics