CanaData construction start statistics have just been released for June 2009. Through the first half of this year, total non-residential building starts (a.k.a., ICI starts) are down by about half (-52%) in square footage and by about one-third (-34%) in dollars versus the first half of last year. Engineering starts, which are only recorded in dollars, are -4% year to date, compared with January to June 2008. Regionally, Alberta (-84% in ICI square- footage starts) is experiencing the sharpest cuts and oil price increases are welcome news.

The Pattern of Starts is Bang On

While the depth of the decline for ICI starts in square footage is more than expected, the sub-category patterns are bang on. Industrial work (-82% in square feet and -86% in dollars) has tailed off the most. Commercial work (-57% in square feet and -52% in dollars) has also seen a big decline. These are the two privately-financed, for the most part, construction categories that have big cyclical swings, both on the downside when entering recession and on the upside when coming out of it.

Among building categories, institutional work, which is primarily carried out on behalf of public bodies, is -28% in square feet and +1% in dollars. Engineering construction starts are also relatively robust, with a decline of only -4%. Private sector projects are being adversely affected by weak product demand, depressed export sales to the U.S., rising office vacancy rates, falling plant usage rates and the ongoing credit crunch. Public sector projects are being given a push by infrastructure spending initiatives in the federal and provincial budgets.

Is Public Sector Work being Released fast Enough?

However, there is a perception that public infrastructure projects are not being released fast enough. The approvals process seems to be somewhat chaotic. It does not appear as if municipalities are even sure if they have the go-ahead for some of their proposals. Better communication of what is in the pipeline would be appreciated by the private sector. Also, the March 31, 2011 deadline for the completion of work is causing anxiety, although Ottawa has said that payments will continue on work that is well underway.

Top Ten Starts List

Despite the arguments above, there is evidence that a pickup in public sector projects is indeed underway. One need only look at CanaData’s Top Ten starts list each month. This is usually dominated by residential and commercial projects. In the last three months, institutional and engineering work have come to the fore, comprising nine of the top ten project starts in April, eight out of ten in May and seven in June. That makes 24 out of 30 of the largest projects to be initiated in the latest quarter to be some form of government-funded work.

Trend Graph

On this score, it is also interesting to look at the trend graph (see below). The 12-month moving-total trend line of ICI starts has been easing down since January 2008. ICI is commercial and industrial work from the private sector, plus institutional work from the public sector. The 12-month moving total of engineering starts, which is almost all government financed, except for oil and gas work, has been trending upward since the middle of last year.

The Construction Outlook

The rise in the world price of oil since February − a doubling from $35 USD per barrel to nearly $70 today − will be an incentive for more formerly delayed energy projects to be brought back to life. As for private sector work, its revival is contingent on China and the United States returning to significant growth paths. At this point in time, it appears that the former nation is making more progress in turning things around than the latter.