At first glance the outlook for non residential investment reflected by Statistics Canada’s Annual Survey of Public and Private Investment Intentions is definitely quite muted.
Following a very modest gain of 1.5% in 2013, public and private organizations planned to invest a total of $404.5 billion in 2014, just slightly (+1.4%) higher than the $399 billion they spent the previous year.
As the chart illustrates, this is the smallest year-over-year gain since 2009, a year that saw investment contract by a chilling 12.2%.
By far the major drag on total investment spending plans in 2014 is public sector spending. Following a gain of 6.6% year-over-year in 2013, public sector organizations across the country expected to invest a total of $89.9 billion in 2014, up just 1.9% from the $87.7 billion they are estimated to have spent in 2013.
Consistent with the back-to-back gains in corporate profits in the final two quarters of 2013 and the accompanying very solid gain in investor confidence, reflected by a 17% increase the S&P/TSX stock price index, private sector firms planned investment spending increased by 1.3% year-over-year in 2014 after almost no change (+0.2% year-over-year) in 2013. This increase in private sector investment plans accounted for just over 70% of the overall increase in total planned investment.
Across the country, although capital spending is projected to increase in six of the ten provinces this year, by far the major contributors to the gain are Alberta and Ontario. Although the planned rise of non-res investment in the Wild Rose province at 2.3%year-over-year, is the smallest since 2009, it accounted for approximately half of the overall gain in the country as a whole.
By far (87.1%) the major contributor to this rise was a strengthening of investment in oil and gas extraction (+3.5%) following a very modest gain of 2.7% in 2013. Together with increased capital spending in manufacturing (+19.4%) and transportation and warehousing (+13.0%), this strengthening in oil and gas extraction will more than offset a projected 8.7% decline in spending by utilities.
Following a decline of 4.5% in 2013, capital spending intentions in Ontario are projected to increase by 2.3% in 2014.
This rise, the largest since 2010, is primarily driven by a 9.9% rebound in capital spending on public administration together with a 14.7% rise in transportation and warehousing (which includes pipeline construction).
In addition, consistent with the strong pattern of motor vehicle sales on both sides of the Canada/U.S. border, capital spending intentions among Ontario’s transportation equipment manufacturers is projected to increase by 28.5% year-over-year in 2014, its largest projected gain in more than 20 years.
Looking forward, while efforts to rein in public sector deficits will likely continue to constrain growth of public sector investment across the country, the fundamental drivers of private sector investment, including corporate profits, investor confidence and capacity utilization are significantly stronger now than they were during the second half of 2012. The relative strength of these fundamentals strongly suggest that private sector investment spending will make a larger contribution to total investment than is currently indicated by this survey of public and private investment intentions.
Total private and public capital investment