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, 2011

Alex Carrick
Stock markets are adjusting to a cloudier outlook for the world economy

The four major North American stock market indices all moved sideways-to-slightly-down in the latest month. That’s for end-of-May closing versus end-of-April.

They were still well ahead of their levels of a year ago. NASDAQ was the leader in year-over-year gains at +25.6%, followed by Dow Jones Industrials at +24.0% and the S&P 500 at +23.5%. The Toronto Stock Exchange recorded the smallest increase with a +17.3% rise.

However, the TSX figure was understated on a currency-value basis. The Canadian dollar appreciated 8% versus the U.S. dollar between May 31 of this year and May 31 of last year.

The percentage increases in the indices versus their recession lows in February 2009 were very impressive. NASDAQ was more than double at +105.7%. The S&P 500 was +83.0%, Dow Jones industrials +78.0% and the TSX +69.9%.

At this time, however, there are a number of factors muddying up the outlook for the world economy. These have been acting as a drag on stock market prices in the most recent period and will continue to have an effect well into the summer.

Some of the major troubling issues and concerns are as follows.

(1) The debt problems of some European nations, particularly Greece, remain unresolved.

(2) Many emerging-nation economies, worried about inflation, are enacting monetary restraint.

(3) U.S. employment growth continues to be disappointing.

(4) The U.S. housing market is now in its sixth year of deep depression with prices still falling.

(5) Almost non-existent residential construction partly explains the U.S. jobs shortfall.

(6) World commodity prices have eased somewhat but remain generally high.

(7) And the high price of gasoline at the pump is a big problem for everyone.

Now add to this list of generalized difficulties a couple of more recent statistics.

The Conference Board’s measure of U.S. consumer confidence fell from 66.0 in April to 60.8 in May. The attitude of respondents towards job prospects turned gloomier.

The U.S. Purchasing Managers’ Index (PMI) of the Institute of Supply Management (ISM) dropped from 60.4% in April to 53.5% in May.

A PMI reading of 42.5% means the overall U.S. economy is expanding, but manufacturing may not be. Only when the PMI reaches 50.0% and higher is manufacturing participating in stronger overall growth.

The PMI has been above 42.5% for the past 24 months or two years. The manufacturing sector has been expanding in the most recent 22 months.

A peak for the PMI was reached in February of this year at 61.4%. The current PMI level (53.5%) corresponds with a 3.8% “real” (i.e., inflation-adjusted) GDP growth rate. But is this sustainable? The drop in the level of the PMI in May was alarmingly sharp.

The PMI is a composite of five diffusion indices (i.e., positive minus negative survey responses on new orders, production, employment, etc.) for the manufacturing sector.

The automotive industry is a big player in the manufacturing sector. In April, there were 13.2 million motor vehicles sold in the U.S., on a seasonally adjusted annual basis, according to Autodata. That was up slightly from March’s 13.1 million units, but down from February’s 13.4.

February of this year was the best month for auto sales since the recession.

Individual automaker results are available from Autodata for May. GM’s sales were +18.6% year to date versus the first five months of 2010, but flat (-1.0%) in the individual month of May 2011 versus May 2010.

Ford’s sales were +12.0% year to date but also flat (-0.3%) when compared with the same month a year ago.

Chrysler LLC did better with a +19.5% gain year to date and +10.1% in May 11 versus May 10.

Sales by Japanese-owned carmakers suffered as a result of parts shortages brought on by tsunami and earthquake damage north of Tokyo. Toyota’s sales were -0.6% year to date and -33.4% for May 11 compared with May 10.

German and South Korean-owned manufacturers have been doing fine, however. For example, Volkswagen’s sales year to date were +18.5% and in May 11 versus May 10, +24.0%. And Kia’s year-to-date gain was +44.8% helped by a May 11 over May 10 increase of +53.4%.

Amidst this brew of murkier prospects for its major trading partner, the U.S., and the world at large, the Bank of Canada chose to leave its policy-setting interest rate unchanged on Tuesday May 30. A growing outcry about rising prices is being met by an equally strident chorus calling for the BOC to be absolutely certain about the economy’s footing before interest rates are raised.

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

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