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 30, 2009

Alex Carrick
Twists and Turns in Provincial GDP Growth

This recession is taking some interesting twists and turns at the regional level. Statistics Canada has just published Gross Domestic Product (GDP) figures for the provinces, 2008 versus 2007. Saskatchewan (+4.4%) was the leader, followed by Manitoba (+2.4%), Nova Scotia (+2.0%), Québec (+1.0%) and Prince Edward Island (+0.9%). All of the other provinces registered declines: Ontario (-0.4%), British Columbia (-0.3%), Alberta (-0.2%) and Newfoundland and Labrador (-0.1%). Real (inflation-adjusted) GDP growth Canada-wide was +0.5%.

Two Watershed Moments in 2008

There were two watershed moments for Canada in 2008. The first occurred in mid-July, when world commodity prices hit their peak. Throughout the remainder of the year, they were mostly in free fall. Not all commodities were affected to the same degree and this had regional implications. Oil and base metal prices dropped like proverbial rocks. Gold and agricultural prices behaved better. Within the farming sector, fertilizer prices have held up quite well.

The second watershed moment was when stock prices sank to the depths in late September. This brought the problems of the world economy home to all Canadians. The resulting losses in family assets, through pension and mutual fund holdings, caused retrenchments in spending that are still going on today.

Consumer spending cutbacks, as well as tighter credit, have caused reductions in key goods production areas. This has also meant massive job layoffs. Much of this effect has been imported from the United States (e.g., weak auto demand), but some of it has been generated domestically. For example, it was inevitable that housing starts would eventually descend from their lofty heights.

Big-Oil Regions – Alberta and Newfoundland

The drop in the world price of oil, from $145 USD per barrel last July, to around $50 now, has particularly devastated the Alberta economy. Big chunks have been taken out of investment spending intentions in the Oils Sands. To a lesser degree, the same is true for the energy sector in Newfoundland and Labrador. Production and price drops are reducing revenue streams for major oil and gas players.

It was in the three western-most provinces that the greatest increases in house prices materialized during the earlier raw materials boom. The swing away from speculative price increases has meant a drastic cutback in new housing in those regions, more so than in Central Canada and the Atlantic Region. Reduced residential construction, on its own, acts as a serious drag on local economies.

Ontario and Québec

The manufacturing economies of Québec and Ontario were already struggling due to a rise in value of the Canadian dollar through to the middle of last year. Then the spillover effects of the U.S. recession began to be felt, particularly in the auto sector. Potential bankruptcy scenarios for General Motors and Chrysler continue to exert a negative influence on goods production in Ontario. On the flip side, the Canadian dollar is back down again and this is helping to spur on some export sales. And government infrastructure spending plans will be well-launched by the fall.

Québec’s aerospace sales are being impacted by reduced business and tourism travel on account of the world slowdown. This problem will be compounded by the swine flu pandemic scare. On the good news front, the Québec government was ahead of the pack in initiating an infrastructure investment program (especially bridge work) before the other regions. The province also has hydroelectric work to fall back on.

Employment Insurance Benefits

The worst numbers on the economy are coming from the West. That’s where the sharpest declines in housing starts are occurring. That’s where the largest increases in employment insurance claims are being processed.

For example, since October of last year, the number of workers receiving employment insurance benefits in Canada has increased by 22%. Alberta has experienced the sharpest increase, +68%, while British Columbia is next at +40%. B.C.‘s resources in the forestry and mining sectors are being pummeled by weak U.S. and international markets. Other inhibiting factors are the regional slowdown in housing starts and the construction lull that is the fallout from meeting target completion dates for 2010 Winter Olympic venues.

Ontario (+29%) has also had a large EI benefits jump. In every other province, the increase has been less than the national average. Finally, there has been considerable coverage in the media about this recession affecting men more than women. The EI numbers bear this out. Year over year, the number of adult males requesting assistance has risen by 37%, whereas the figure for women has risen by a more modest 21%.

In my next blog entry, I’ll round out this regional overview by looking at demographic changes. To a significant degree, these are a consequence of what has been happening on the economic front.

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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