Construction Industry Forecasts

Almost every day, there is fascinating information published in one form or another – often by Statistics Canada – on the changing nature of the Canadian social and economic make-up.

As just one example, Statistics Canada has recently released data on this year’s first quarter population estimates for the country and the provinces. Alberta has returned to the spotlight.

Prior to the recession, the mega energy project construction boom in Alberta pulled workers in from almost all other regions of the country.

The effect culminated when the global price of oil peaked at US $144 per barrel in July 2008.

In the subsequent trough of the recession, the price of oil fell to only US $33 per barrel and Oil Sands work was cancelled or put on hold. Workers returned to their home provinces.

With oil having now recovered to about US $100 per barrel, investments are heating up again. And the pattern of workers moving into Alberta, looking for jobs, has returned.

The January 1 to April 1 increase in Alberta’s population has been estimated by Statistics Canada at +0.4%. That compares with the national quarter-to-quarter increase of +0.2%.

The actual gain in numbers was +15,500 bringing the province’s population up to 3,758,200.

There was a net inflow of 5,300 individuals in Alberta’s exchanges with other provinces. That was its highest interprovincial population gain for a first quarter since 2006.

But the net gain from international migration (3,600) was the lowest for a first quarter since 2004. This is sure to alter as word disseminates internationally about the province’s revival.

Most of the other provinces recorded percentage gains in population that matched the national average (+0.2%). Included in this grouping were: Prince Edward Island, Quebec, Ontario, Manitoba, Saskatchewan and British Columbia.

Other than P.E.I., the provinces in the Atlantic Region either held steady or suffered losses – New Brunswick (0.0%), Nova Scotia (-0.1%) and Newfoundland and Labrador (-0.1%).

In northern Canada, Nunavut (+0.3%) was the frontrunner, followed by the Yukon (+0.2%), while the Northwest Territories registered a small drop (-0.1%).

In May, Statistics Canada published a report on pension plans in Canada. In 2009, there was the slowest rate of growth (+0.2%) of membership in registered pension plans (RPP) in four years. The total number of RPP registrants on January 1, 2010 was 6,024,000.

Furthermore, all of the increase in RPP membership in 2009 was in the public sector. As a result, for the first time ever, the public sector accounted for more than half (50.2%) of all RPPs.

Keep in mind there are approximately four jobs in the private sector for every one job in the public sector.

It is also interesting to note that as of January 1, 2010, women comprised 62% of RPP membership in the public sector.

On an industry basis, the biggest gains in RPP membership in 2009 occurred in public administration (+52,350); finance, insurance and real estate (+34,860); and educational services and health care (+23,250).

Manufacturing experienced the largest decline (-62,000).

The proportion of all employees covered by an RPP was 39.2%. However, in the private sector, the coverage rate was only 25%.

There are two major categories of pension plans, defined benefit and defined contribution. The latter is a more recent creation and shifts a greater portion of the responsibility for administration and rate of return onto the employee. 

The proportion of all RPPs that were defined benefit plans was 75% on January 1, 2010. But that was a drop from 85% ten year ago. It’s still so high thanks to the public sector.

Defined contribution plans have become much more prevalent in the private sector. In 2009, their enrolment rose 2.4% and they ended the year accounting for 16% of all RPPs.

The remaining 9% of all pension plans were hybrids. 

More than 85% of all defined contribution RPP memberships are in the private sector.

With the passage of time, defined benefit plans have caused many old-line companies a great deal of grief. A prime example has been the Detroit Three automakers. Set-in-stone pension payouts were originally calculated based on assumptions about investment returns that never materialized. For example, few anticipated the record low interest rates that are in place today.

The retirement pay obligations of venerable firms make them vulnerable when vibrant young competitors come on the scene unencumbered by defined benefit plans for long-time employees.

At the heart of many labour disputes (e.g., Air Canada) is management’s desire versus the union leadership’s reluctance to shift more of the obligation for pensions onto the employee.

The way the issue is often resolved is to have current employees stay in a defined benefits plan, but to require new employees to accept the defined contribution option.

As for current solvency statistics (as of January 2010), 83% of RPPs had liabilities greater than their assets (a.k.a. unfunded liabilities), according to the Statistics Canada report.

It’s some comfort to know, however, that less than 30% had a solvency ratio of less than 80%, where each dollar of liability was covered by less than 80 cents worth of assets.

The dramatic recovery in equity prices on North American stock markets has probably helped with the solvency problem since the dog days of the recession in early 2009. February 2009 was the trough for all four major North American indices – the TSX, Dow Jones, S&P 500 and NASDAQ.

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.