March 28, 2013
Highlights from Statistics Canada’s Private and Public Investment Intentions Report (Part 1)
There is so much useful information for the construction industry in Statistics Canada’s Private and Public Investment in Canada, Intentions 2013 report (Catalogue no. 61-205-X), two Economy at a Glances will be needed to cover all the highlights.
Part 1 will present the broader strokes, with most of the regional analysis left to Part 2. There’s one key exception. I’ll mention right off the top that Alberta is expected to account for the most construction activity this year among all the provinces.
Its dollar volume ($77.6 billion) will beat even what is planned in Ontario ($75.3 billion), which has a much larger population (13.5 million versus 3.9 million). There will be more on this subject as this article proceeds.
The data in the PPI report is derived from a survey of 28,000 private and public organizations conducted between October 2012 and late January 2013. The investment figures are divided into two key sub-categories, new (as opposed to repair) construction and machinery and equipment.
Only one non-survey source contributed to the numbers. Canada Mortgage and Housing Corporation (CMHC) provided the housing starts forecasts used to calculate the residential investment figures.
The numbers are in “current” (i.e., not adjusted for inflation) dollars. Therefore, percentage changes ranging from slightly positive to 0.0% are likely to be negative in constant-dollar terms. The current rate of inflation for construction costs, labour and material combined, is in the range of +2.0% to +3.0%.
Grand total Canada-wide investment in 2013 is expected to be $398.2 billion – in other words, just shy of $400 billion. New construction will account for $283.6 billion (71.2% of the total), while machinery and equipment investment will amount to $114.6 billion (the remaining 29.8%).
Another way to express their relationship is to say that the dollar volume of construction investment will be two-and-a-half times the machinery and equipment component.
The grand total investment figure will increase only 1.7% in 2013 year over year versus a rise of 7.2% in 2012. Machinery and equipment investment, with a 3.6% gain in 2013, will outperform new construction, at +1.0%. In 2012, the percentage-change relationship was reversed, +5.3% for machinery and equipment versus +8.0% for construction.
Strictly within construction, residential work will be 37% of the total this year, with non-residential activity accounting for a larger 63% portion.
The current-dollar advance in non-residential construction work in 2013, at +1.4% (versus +7.2% in 2012) will slightly exceed the performance of residential investment, which will be flat (+0.2%) after climbing 9.3% in 2012.
Let’s look at the largest industrial sub-categories, with some comments on what’s driving them.
By far the largest sub-category within non-residential construction is mining and oil and gas extraction. In 2013, spending on this type of work will reach nearly one-quarter (24.3%) of the grand total, including housing, and almost 40% of non-residential construction.
Regionally, 60% of mining and oil and gas extraction spending in the country will occur in Alberta. There’s one obvious conclusion to be drawn from this percentage. Alberta’s energy sector is hugely important to the economy of the country as a whole – and to the nation’s construction industry to an even greater extent.
Therefore, it’s no small matter when approvals for such projects such as the Keystone XL pipeline to the Gulf Coast and the Northern Gateway delivery system to the Pacific Coast hang in the balance. Such projects are critical if Canada is to realize its full potential as an economic entity within an increasingly-competitive world trading environment.
As a percentage of total oil and gas work, “conventional” development will account for 55.9% in 2013 – somewhat more than half. Taking a smaller but still sizable share (44.1%) will be non-conventional sources. These are primarily bucket-wheel excavating and steam-assisted gravity drainage (SAGD) projects in the Oil Sands.
The 44% for non-conventional oil and gas in 2013 will be up from 40.8% in 2012 and just 33.2% two years ago in 2011.
Within total mining investment this year, two of the larger sub-categories will be gold and silver ore mining (27.8% of the total) and potash (29.6%). The nearly 30% share taken by potash will be a substantial increase from 2012’s 18.6% and 2011’s more modest 12.4%.
Potash mining’s 2013 year-over year increase in new construction will be +44.6% after an even steeper climb in 2012, +89.8%.
Spending on gold and silver mining in 2013 will move in the opposite direction, -17.8%. This will be a comedown after 2012’s +2.7%.
The second largest sub-category (at 17.5% in 2013) within non-residential construction is public administration. This category includes roads and highways, prisons and town halls, but does not encompass schools and many hospitals. The latter two have their own separate categories.
Nor does it include electric power work or sewer/watermain activity, both of which are included among “utilities”.
At the back of the PPI report there are separate much larger figures for “public” investment as opposed to the “public administration” numbers in the front sections and I’ll discuss them further in Part 2.
But for now, let’s look at the “public administration” category. All three levels of government – federal, provincial and municipal – have talked at length about the need to rein in spending.
The year-to-year percentage change for “public administration” in 2013 at + 1.1% will be a drop from 2012’s +4.5%, but it won’t be significantly harsher than for overall construction spending.
Capital spending on education services nation-wide in 2013 will be -10.0% year over year after lying flat (+0.8%) in 2012. Spending at the elementary and secondary school levels combined (54.0% of the total) will exceed what will be allocated at the university level (31.3% of the total in 2013).
Elementary and secondary schools will experience a drop in capital spending of 13.3% in 2013 after a sizable increase of 23.6% the year before. University capital spending will be cut back a further 10.5% this year on the heels of a 12.5% cut in 2012.
In keeping with the overall theme that is becoming apparent, capital spending on health care projects will be flat in 2013 (+0.7%), but that will actually be an improvement over 2012’s percentage change of -3.4%.
Most of the construction spending on health care will be allocated to hospitals (72.2% in 2013), although it’s worth pointing out that nursing and residential care facilities (currently 20.5% of the total in this category) will likely take an increasing share as the population ages. The first post-War War II baby boomers, born between 1946 and 1966, reached age 65 in 2011.
This is becoming a rather long report. I’ll have to stop now and pick up the analysis in Part 2. There are many more talking points to be shared.