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 - Oct 20, 2011

Alex Carrick
Latest data on the North American economy has been a tad cheerier

The latest data on the North American economy has been a tad cheerier. While this won’t serve to make anyone giddy with excitement, it will lessen the frowns that have become all too commonplace.

For example, U.S. housing starts in September, in a pleasing change of pace, jumped 15% versus the month before.

At 658,000 units seasonally adjusted and annualized, they were at their highest level since April 2010 (687,000 units) according to the Census Bureau and Department of Housing and Urban Development. The gap between then and now has been 17 months ago. 

On a year-to-date basis (i.e., the average monthly figure this year compared with the same first nine months of last year), total U.S. starts have gradually improved to the point where they are almost level with last year (-1.7%).

April was their low point this year, on a percentage-change basis, at -9.3%.

All four major geographic regions recorded month-to-month gains in September, led by the West (+18.1%) and followed by the South (+15.7%), Northeast (+12.7%) and Midwest (+9.3%).

The West (+2.9%) has the distinction of being the only region with starts higher on average so far this year, although the South (-1.2%) has come close to reaching break even.

The Midwest (-5.6%) and Northeast (-6.9%) are still lagging.

Starts in the West have been exhibiting a consistent upward trend that is most evident when graphed. In the other regions, the monthly performances have been more variable.

National single-family starts in the latest month were +1.7% versus the period before. But on a year-to-date basis, they remained negative at -12.7%.

Multi-family starts were much more buoyant, +51.3% month over month and +43.1% year to date.

The multi-family market was a higher-than-usual 35% of total starts in September. Clearly that’s where the action has been. 

Let’s not get carried away, though, with the thought that housing starts may have reached a significant turning point.

Building permits in September, which are an advance indicator for starts, were 5.0% below August. This belies the notion that an ongoing monthly pick-up in starts is assured.

Demand for residential real estate remains weak. In the resale market, September’s unit sales level was a drop of 3.0% versus August, according to the National Association of Realtors (NAR). On the plus side, the year-over-year change in existing home sales was +11.3%.

A key determinant of demand has always been affordability. This should be receiving a boost from depressed price levels and record low mortgage rates. Instead, it is being overwhelmed by a high unemployment rate and questionable income growth.

With respect to the latter two points, some progress seems to be taking shape. U.S. initial jobless claims have fallen to around 400,000 on a fairly steady basis over the past three months.

In the latest week, they were 403,000. That’s well below the half-a-million benchmark that is usually judged to mean new hires are being matched by new dismissals.

If initial jobless claims begin to drop below 400,000 on a consistent basis in the weeks and months ahead, then success will become apparent in lowering the 9.0%-plus unemployment rate.

Meanwhile in Canada, a new infrastructure stimulus program, of sorts, has just been launched.

Only this one is expected to last 30 years. And the hope is that it will serve to revive an industry in danger of slipping into long-term decline.

Ottawa has just awarded multi-billion dollar shipbuilding contracts to yards in Halifax, Vancouver and Victoria. The Irving Shipyard on the East Coast has been awarded a $25 billion contract to build the next generation of destroyers and frigates for the Canadian navy.

Seaspan Marine Corp. on the West Coast will build non-combat vessels for Ottawa, including icebreakers and Coast Guard ships, for the tidy sum of $8 billion.

There is another $2 billion in smaller-ship construction still be awarded. Davie Shipyards in Levis (Montreal), Quebec, which failed to make the winner’s circle in the first round, would dearly love to secure some of this work.

Increases to employment on both coasts will be significant. Media reports, crediting a study by the Greater Halifax Partnership, have placed the annual average increase in employment – both direct and indirect – in Nova Scotia at 8,500 over the three-decade time frame of the assembly work.

In Halifax, much is being made of the fact fewer young people will have to leave the province to get a job. In recent years, many families have had to cope with one spouse moving to the Oil Sands of Alberta, for example, while the other stays behind for a variety of reasons.

The mega energy project developers in Alberta are probably sitting up and taking notice, however. The scheduling of their super-sized projects to avoid severe labour shortages, especially in the skilled trades, just got a lot harder.

Furthermore, assessing the extent of the problem will be more difficult now that Ottawa has pulled the funding for the Construction Sector Council (CSC).

This was an organization set up to co-ordinate input from industry, labor unions and government concerning construction labor requirements, which have become problematic on account of mega project needs in many regions and high expected retirement rates.

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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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

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