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Chief Economist: Alex Carrick

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CMD Construction Data Canadian Chief Economist Alex Carrick discusses how current developments in the Canadian economic environment will bring opportunities and challenges for designers, contractors, and materials and services providers.

Latest Economic Nuggets: Mid-August 2012

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The following are Economic Nuggets “ripped” from the latest data releases and media headlines.

(1) The U.S. economy added 163,000 net new jobs in July, an impressive gain after several months of weaker numbers. The unemployment rate remained elevated at 8.3%. The better employment result was presaged by lower initial jobless claims over the last several weeks. That figure has returned close to 360,000 after bouncing up near 400,000 for a while.

(2) The U.S. housing sector has begun to trek up a gently-sloping recovery path. Starts have been trending higher and prices are improving. Both S&P Case-Shiller and the National Association of Realtors are reporting year-over-year price climbs. Low rental vacancy rates justify the strength in multiple-unit starts. The inventory of new homes for sale is near a record bottom.

(3) U.S. second quarter “real” (i.e., inflation-adjusted) gross domestic product (GDP) growth was +1.5% annualized, marking a slowdown from Q1’s +2.0%. If the housing sector is truly is on the mend, however, it will contribute significantly to GDP growth in the quarters ahead.

(4) Europe is continuing to muddle through. A greater sense of pragmatism has become apparent in decision-making. Credit the new leadership that has emerged. Also, German authorities have eased up somewhat – at the urging of others – on their strict adherence to austerity principles.

(5) The Purchasing Managers’ Index (PMI) of the Institute of Supply Management (ISM) was 49.8% in July. U.S. manufacturing sits on the cusp of expansion versus contraction. The Conference Board’s latest consumer confidence index rose modestly from 62.7 to 65.9.

(6) The current economic scenario is a throwback to the old days when the U.S. economy would go it alone on the world stage. There are several major uncertainties tempering enthusiasm – most notably the implications of the Presidential election for the Bush era tax cuts.

(7) Capacity utilization rates in both the U.S. and Canada have clawed their way back from a range of 60% to 65% in the recession to about 80% at present. Once the figure reaches 85%, firms consider how they will meet future demand. This is a signal for investment activity and construction starts. For example, the motor vehicle sector in Canada is recording a usage rate approaching 90% and major investment projects are being rolled out by some of the automakers.

(9) Canada’s May GDP rose a tepid 0.1% month to month after April’s 0.3% increase. In the absence of European and Chinese demand for raw materials, and with commodity price hikes in remission, Canada’s prospects once again depend on how well the U.S. economy performs.

(10) Construction costs in Canada remain a bargain. Based on component movements in the Industrial Product Price Index (IPPI), overall construction material costs were +1.0% year over year in June. Residential was +3.2%, non-residential building +1.2% and engineering -0.6%.

Alex Carrick

Find Canadian construction-related economic articles in Canadian Construction Market News and in the Economic Outlook section of Daily Commercial News.

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