Construction Forecasts

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Stronger business investment should offset the impact of slower U.S. growth

08/26/2011 by John Clinkard

Heading into the second half of 2011, there is solid evidence that business non-residential construction is making a significant contribution to economic growth in Canada despite the fact that the federal government’s infrastructure stimulus program expired on March 31, 2011.

This observation is based on the fact that, according to Statistics Canada, the constant dollar value of total investment in non-residential construction was up by 3.4% y/y in the second quarter of 2011 due to solid gains in spending on commercial projects (+8.6%) and industrial projects (+6.6%).

This was despite a 6.2% drop in spending on institutional projects including schools, hospitals and public administration structures.

This evidence of stronger business non-residential investment is also supported by the fact that over the past three months (April to July) total construction employment in Canada has increased by 36,200 compared to a gain of 3,800 during the same period in 2010.

Although Statistics Canada does not break out construction employment by private vs. public sector, the fact that total private sector employment rose by 153,000 while public sector employment declined by 65,000 strongly suggests that the majority of construction jobs added over the past three months were in the private sector.

Looking forward, although there are some serious concerns about the health of the US economy, the most recent Bank of Canada Business Outlook Survey (BOS) indicates that the near term outlook for business non-residential investment is positive.

According to the BOS, the net percentage of firms planning to increase investment in machinery and equipment over the next twelve months rose to 30% in the second quarter — its highest level since the third quarter of 2010.

In addition to this improvement in investment intentions during the second half of this year, the value of non-residential building approvals has increased by almost 30% due to very healthy gains in commercial (+32%) and industrial (+29%) work, as well as institutional spending (+21%).

Business and government non-residential investment and net business investment plans
Business and government non-residential investment and net business investment plans
Data Sources: Statisics Canada & Bank of Canada/Chart: Reed Construction Data, CanaData.

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