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 - Jun 01, 2009

Alex Carrick
Ontario’s Prosperity may depend on a Stronger-valued Loonie

This story turns conventional wisdom on its head. A lower-valued Canadian dollar is supposed to be good for Central Canada’s economy because it helps manufacturers make export sales to the U.S. and it reduces the incentive for Canadians to travel abroad. However, in the new economy that is emerging, a higher-valued Canadian dollar may actually benefit central Canada, and particularly Ontario, to a greater extent overall.

The Alberta Petro-currency Connection

What is interesting about this notion is that it directly ties Ontario’s prosperity to that of Alberta. Canada has become a petro-currency. The value of the loonie moves directly in line with changes in world oil prices. This effect is underway right now. The Canadian dollar has been moving up in value in corresponding fashion with the climb in the price of oil from $34 USD per barrel in February to a current level in excess of $60 per barrel.

The manufacturing sector in Canada and the United States is in long-term decline. Production-line work is moving to low-labour-cost producers in newly developing and emerging nations. There will still be some significant amount of manufacturing regardless. Much of this will be to supply local markets, where transportation costs are reasonable. Besides, Chrysler and General Motors may come out of their restructuring stronger than before. The Japanese auto presence in Ontario will continue to be strong.

Services and Knowledge-based Industries

Nevertheless, academic studies and straightforward logic indicate that the future for employment in Ontario will rest with services and knowledge-based industries. Cities along the Highway 401 and QEW corridors are known for their auto assembly and parts plants. One can still drive by Woodstock and see half a million dollars worth of inventory, in the form of vans and sedans, on a truck leaving every fifteen minutes or so.

Services and knowledge-based or creativity-focused work includes employees in finance, insurance, information, publishing, computers, graphics, biotechnology, pharmaceuticals, telecommunications and education, to name a few. The same highway corridors that are feeder routes for manufacturing are also a rich source of intelligence. Included are the university cities of Ottawa, Kingston, Toronto, Guelph, Kitchener-Waterloo and London.

Also, do not forget that Windsor, where the auto sector has been ravaged, is home to a fine university located at the base of the Ambassador Bridge where it begins to cross the Detroit River. The rich vein of community and training colleges stretched across Ontario and in the north should also be included in this cataloguing of the province’s assets.

Where does the Canadian Dollar come in?

Fine so far, but where does the value of the Canadian dollar come in? In the fall of 2002, I gave a speech in Washington D.C. At that time, the value of the loonie was less than $0.70 USD. Amidst my well-heeled compadres at the conference, I felt like a pauper.

Having developed special skills and knowledge, how does Ontario keep its workers? What attracts people and makes them want to stay? The answer is simple - challenging jobs, money and amenities. On a salary level, the value of the Canadian dollar gets most attention when there is a push on to draft or trade for a professional athlete to play for a Canadian team. Many an athlete has balked at the crimp this might put in their salary.

With its proximity to huge market pools both north and south of the border and the manner in which the Internet has expanded where a worker can be located, there is no reason that Ontario cannot continue to have the challenging jobs. As for amenities, Ontario’s recreational activities are as high-brow or as low-brow as almost anywhere else on earth. But people can still be lured away to jobs elsewhere for the right monetary reward. An increase in the value of the loonie versus the greenback makes the incentive for workers to first become engaged here and then to remain here a whole lot stronger.

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

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