Outlook for non-residential investment continues to deteriorate in 2008
John Clinkard
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Seed Newsvine |
In first-quarter 2008, operating profits of Canadian corporations fell by 1.1% following a slightly smaller 0.9% decline in fourth-quarter 2007. There were three key contributors to this first-quarter weakness:
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(1) continued slowing growth in the United States;
(2) deteriorating domestic credit conditions due to the sub-prime mortgage crisis; and
(3) steady increases in labour costs.
Although quarter-over-quarter growth in profits has declined over the past two quarters, profits in first-quarter 2008 were up by 5.1% compared to the first quarter of 2007, when profit growth rose 3.1% over first-quarter 2006.
The following is a look at quarter-over-quarter operating profits across industrial sectors in the first quarter of 2008:
Financial services: -11%; transportation and warehousing: -8.4%; construction: -8.1%; wholesale trade: -3.1%; manufacturing: -2.3%; oil and gas: +3.1%; mining (excluding oil and gas extraction): + 6.1%. In the retail trade sector, sustained strong growth of consumer spending, due to recent healthy increases in disposable incomes and employment, boosted quarter-over-quarter profits by over 6.5% in the first quarter. This sector also saw a 6.2% quarter-over-quarter rise in the final quarter of 2007.
Nevertheless, the fact that operating profits have fallen for two consecutive quarters is a clear precursor of slowing investment spending in 2009. Having said this, the fact that year-over-year profit growth is still well in the black suggests to us that private-sector investment spending is likely to continue to contribute to overall growth during the remainder of 2008.
It should be noted that, while private-sector spending is likely to slow in the coming quarters, this weakness should in part be offset by sustained growth of public-sector investment. This expectation is based on the results of Statistics Canada latest survey of Public and Private Investment Intentions.
