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On a national basis, there are clear signs that office-based employment, a key driver of commercial construction, is slowing. Over the past eighteen months, its year-over-year rate of growth has dropped from a high of 4.8% to its current (March 2008) rate of 2.5%.
A cornerstone of the industrial sector in Canada (and a main driver of industrial construction) is the auto industry. Now Ford Motor Company of Canada and the Canadian Auto Workers Union have reached a tentative deal that does not go far enough in keeping the sector competitive. A colder dose of reality would have served better than an early agreement. The former Big Three remain important to the economy of Ontario and the longer-term prospects for plant survivals have taken a turn for the worse.
Statistics Canada has recently made available the results from its latest survey of major owners entitled Private and Public Investment in Canada, Intentions 2008. The results reveal much about what is going on in the country and the regional shifts that are occurring. Total current dollar construction investment in Canada in 2008 is expected to be $219 billion. This will be a 5.0% increase from the previous year. The 2007 increase versus 2006 had been a similar +6.0%, but the mix will be quite different this year.
In its April World Economic Outlook, the International Monetary Fund (IMF) again downgraded its expectations for global economic growth in 2008 and 2009.
Year-over-year total Canadian retail sales were +5.7% on an actual basis in February 2008 and +6.2% on a three-month smoothed basis. However, they did decline -0.7% on an actual month-to-month basis versus January and this was the first such drop in seven months going back to July 2007. The problem going forward is that paycheques only stretch so far. The cost of gasoline at $1.20 per litre and moving higher is cutting into spending in other areas that are more optional, such as entertainment.
Canada’s stock of sanitary and storm sewers is, at 53.3% of its useful life of 33.6 years, the third oldest of the five major classes of public infrastructure.
The Bank of Canada has just cut its key benchmark interest rate, the overnight rate, by 50 basis points (100 basis points = 1.00%) to 3.00%. The most recent peak for the overnight rate was 4.50% in the fall of last year. It appears that the BOC considers Canada’s economy to be at a turning point. While many of this year’s first quarter statistics continued to perform well, signs of gathering trouble have been cropping up.
In its latest housing starts forecast package (see accompanying tables), CanaData has revised its 2008 total Canada figure up from 200,000 units to 210,000 units. This may still prove to be conservative. Housing starts through the first quarter of this year have averaged 246,000 units (seasonally adjusted at an annual rate), which is +9.0 versus the same period last year. But there are signs of weakening. Tables record Cana Data’s latest housing starts forecasts for Canada, the provinces and six major cities.
The most recent (Q2/2008) Bank of Canada Business Outlook Survey reinforced the view that construction activity in Canada will slow in 2008 compared to 2007.
Despite severe winter weather, Toronto (+60%) was a leader along with Calgary (+68%) in first-quarter 2008 starts. Ottawa (+37%), Montréal (+26%) and Vancouver (+19%) also had gains. In all five of those centres, it was multiple-unit starts that pulled up their totals. Only Edmonton (-31%) had a tail-off in combined starts. There has been a large “disconnect” of late between singles and multiples. Furthermore, sales of existing homes are weakening and this has implications for new home starts and prices.
