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 27, 2012

Alex Carrick
U.S. GDP +2.2% in Q1 2012 and Alberta led Canadian Provinces in 2011

Late April has been a time of gross domestic product (GDP) releases, both for the U.S. (first quarter 2012) and for the provinces in Canada (full year 2011).

Generally speaking, growth has proceeded at a healthy but moderate pace. Let’s take a look at some of the key underlying trends.

The U.S. GDP gain in the first quarter of this year was 2.2%, according to the Bureau of Economic Analysis (BEA). This is what’s known as the “advance estimate”. It will be revised at the end of next month and then finalized two months from now.

The +2.2% figure is the quarter-to-quarter percent change in “real” (i.e., inflation-adjusted) dollars, bumped up to an annual rate.

The biggest factor in the overall increase was a 2.9% jump for personal consumption expenditures (PCE). That was the fastest rate of gain for PCE since the fourth quarter of 2010.

Consumer spending accounts for about 70% of U.S. GDP. It’s being bolstered by a better jobs market and incomes that are on the upswing.

Purchases of durable goods advanced 15.3%, which was much faster than for either non-durables (+2.1%) or services (+1.2%). Car sales and production have been much improved since the recession.

Private investment recorded a reasonably strong increase (+6.0%), led by the residential component. In fact, investment in housing (+19.1%) proceeded at its fastest clip since the second quarter of 2010 (+22.8%).

Investment in non-residential structures (-12.0%), however, hasn’t been a plus. In the latest quarter, it detracted from the general thrust of economic activity. 

For the sixth quarter in a row, government spending (-3.0%) declined, with the federal portion (-5.6%) dropping faster than at the state and local level (-1.2%). Expenditures on defense were notably weak (-8.1%).

Another factor holding back the overall GDP advance was a level of inventories that didn’t increase by as much in the latest quarter as in the preceding three months.

Manufacturing hasn’t been as gung ho about building up stockpiles as it was earlier in the recovery. 

Back here at home, provincial GDP results for 2011 have just been released by Statistics Canada. These numbers are on an industry basis. There were increases everywhere except the Northwest Territories (-5.5%).

The Canada-wide figure was +2.6%, which was slower than the +3.4% pace recorded in 2010.

Six provinces and territories grew faster than the national average – Nunavut (+7.7%), the Yukon (+5.6%), Alberta (+5.2%), Saskatchewan (+4.8%), B.C. (+2.9%) and Newfoundland and Labrador (+2.8%).

The Yukon was aided by exploration for gold and silver, while the NWT suffered from a decline in diamond mining. 

The only Western province to grow slower than the national average was Manitoba (+1.1%). Floods that damaged crops provided much of the explanation.

Ontario’s output gain (+2.0%) was below speed relative to the country as a whole, but it did beat Quebec’s number (+1.7%).

In the Maritimes, Prince Edward Island grew the fastest (+1.1%). Nova Scotia (+0.3%) and New Brunswick (+0.1%) hardly budged at all.

The press release setting out the numbers makes the observation that the fastest growing regions were driven by (resource) exploration, mining and related construction activity.

It’s interesting that construction is included in this list. Can it be that our industry is finally getting the recognition it deserves?

This is a point that CanaData has been making for a while now. Construction is no longer just a sidebar to what’s going on in the rest of the economy. Due to the immense scope of on-site and behind the scenes activity in the industry, construction has became a major driver of economic growth on its own.

The large role of homebuilding in the economy is easy to spot and understand.

It takes some imagination to grasp how the wealth of resource projects across the land means engineering/civil work has taken on an outsized importance as well.

Ontario used to be a leader among the provinces when it came to GDP growth. Lately, however, that province has been struggling. The latest indications of tough times have come from the major credit rating agencies. The recent budget has given rise to further reviews.

S&P’s conclusion has been to leave Ontario’s debt rating unchanged, but to lower the outlook from stable to negative. S&P is concerned that there are a lot of challenges the province will have to overcome to keep its finances under control.

Moody’s Investors Services hasn’t been quite as generous. It has lowered Ontario from Aa1 status to Aa2. However, this is partly a catch-up maneuver. Moody’s did not downgrade Ontario in the fall of 2009 when both S&P and DBRS did.

The manufacturing sector in Ontario is no longer providing the same forward thrust as in the past. The higher-valued Canadian dollar accounts for some of the difficulty.

The fact many production line jobs in “richer” nations have been outsourced to countries where labour costs are cheaper is also a factor.

The upshot is that tax revenue isn’t flowing into the provincial coffers as freely as in the past.

Ontario is projected to run a $14.8 billion deficit in 2012-13. Even with the austerity measures proposed in the recently passed budget, balance won’t be achieved until the 2017-18 fiscal year.

The Liberals under Dalton McGuinty are governing with a minority. They needed the support of the NDP to pass the budget. This came in a backhanded way.

As opposed to saying either “yay” or “nay”, NDP members sat on their hands during the vote. This “neutral” concession was won by including a budget provision for a 2% surtax on individuals earning more than $500,000 per year.

In upcoming negotiations with doctors, teachers and public sector workers, the Premier will be attempting to win a two-year wage freeze. If he is unable to do so, anticipate further talk about a credit downgrade.

Alex Carrick

Find Canadian construction-related economic articles in Canadian Construction Market News and in the Economic Outlook section of Daily Commercial News.


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Read Other Recent Alex Carrick Posts

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