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 - Apr 06, 2011

Alex Carrick
Stock Exchanges are seeking perspective on the view

The mostly steady upward progression in stock prices from last August through this February came to a halt in March. North America’s four major indices – Dow Jones Industrials, S&P 500, NASDAQ and the Toronto Stock Exchange – ended March flat versus February’s month end.

Taxes on corporate profits are a hot political topic on both sides of the U.S.-Canada border. They figure prominently in the current Canadian federal election campaign.  In 2000, the combined Ottawa-provincial tax rate in Canada stood at 42%. Over the past decade, it has been gradually reduced to 28%, rendering it competitive with other major industrialized nations. Mr. Harper’s Conservatives support a further decline to 25% by 2013. The opposition Liberals and NDP want to cancel the next round of cuts and use the money to finance an array of social programs.

In the U.S., calls for government spending cuts to avoid exceeding a legislated cap on debt are threatening to halt payments to seniors and military personnel. Looking beyond this crisis, key planks in the Republican platform for the 2012 Presidential election are set out in “The Path to Prosperity” budgetary plan that maps out the next decade. It proposes cuts to spending on Medicare and Medicaid while also reducing taxes for some wealthy individuals and corporations.

On the world stage, March was a month of uncertainty. The rebellion in Libya hasn’t gone as planned. Defections among Gaddafi’s inner circle are being counterbalanced by the Colonel’s success on the ground in driving opposition forces back to their home base in Benghazi.

The uncertain outcome in Libya, as well as unrest in other Arab nations such as Yemen and Syria, is applying an upward push to oil prices. The global price of oil now has a “risk” premium built in that is likely to remain in place for a long time. Gasoline prices in the U.S. are approaching a level ($4.00 per gallon) that previously demonstrated an ability to drastically alter consumer behavior. Pricey gas has unfortunate consequences for many other consumer goods.

In the Ivory Coast, the world’s largest supplier of cocoa, the man defeated in the November 2010 Presidential election refused to go. Prodded by UN and French military intervention, it became clear that Laurent Gbagbo would be forced to withdraw in favor of Alassane Ouattara, a former economist with the International Monetary Fund (IMF). Mr. Ouattara will have a difficult time reconciling differences that have split the nation, Muslim-north versus Christian-south.

The problems bringing radioactivity at the Fukushima nuclear plant in Japan under control are damaging the outlook for the uranium industry. However, a number of countries that have few alternatives to nuclear power are making it clear they will be proceeding with projects regardless.

Turkey is the prime example. It’s planning a three-unit reactor in a region that has a well-known fault line. The plan is to use a Russian technology that supposedly can withstand anything Mother Nature has to offer. Some neighboring countries such as Greece are less than reassured.

The collateral damage from the earthquake and tsunami in Japan are extending well beyond that nation’s boundaries. India has been first to impose a three-month ban on importation of food and fish from Japan, not a trivial matter. Japan, after all, is the world’s third largest economy.

Supply disruptions at Japanese car plants are beginning to have unpleasant ripple effects throughout the motor vehicle supply chain. Assembly operations at Japanese car plants in North America are expected to close down shortly, with no estimate on how long that might last.

The People’s Bank of China (PBOC) – the central bank of the People’s Republic of China - recently raised its key policy-setting interest rate for the fourth time in six months. This was pre-emptive action to try to reduce inflationary pressures that are now running at a 5.0% year-over-year rate. Other means to slow the economy have included raising bank reserve requirements and threatening to impose price controls. All such measures are designed to cool overheated growth.

There have also recently been some technical issues with regard to the stock exchanges themselves. The NASDAQ 100 index (a subset of the better-known NASDAQ composite) is undergoing a significant re-weighting of major companies within its make-up. Inflated by its capitalization gains of recent years (i.e., number of share multiplied by dollar value), Apple’s proportion has risen to vastly exceed any other company. The new weighting will reduce Apple (from 20% to 12%), while lifting Microsoft (to 8.3%), Google (to almost 6%) and many others.

The new weighting is scheduled for implementation on May 2. It is expected to initiate a round of buying and selling by money managers as they adjust their holdings to reflect the revised index. The NASDAQ-100 does not include financial firms but does include foreign firms.

The Toronto stock exchange is being courted by the London stock exchange. Originally touted as a merger of equals, the LSE would hold a slightly higher ownership percentage and be in control. Ottawa is reviewing the proposal to determine if it would be in the best interests of Canada.

The “pro” arguments suggest Canadian resource firms will gain access to a wider range of investment sources located throughout Europe and the world. Also, Canadians will be able to buy shares in resource firms (i.e., giant mining concerns) that are now only listed on the LSE.

Counter-arguments say it will be harder and more costly for smaller Canadian start-up firms to become listed. Plus, events are turning in Canada’s favor. This nation has the resources that others need, placing us in the driver’s seat. Why turn the steering wheel over to someone else? 

Most of Canada’s major banks (i.e., the ones that have no direct stake in the proposal either through underwriting fees or acting in an advisory role) have lined up against the proposal.

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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