April 1, 2013
Highlights from Statistics Canada’s Private and Public Investment Intentions Report (Part 2)
Chief Economist, CanaData
This is the second Economy at a Glance in a row (i.e., Parts 1 and 2) devoted to the construction spending figures set out in Statistics Canada’s Private and Public Investment (PPI) in Canada, Intentions 2013 report (Catalogue no. 61-205-X).
The PPI results are based on a late-2012 through early-2013 survey of 28,000 government and private sector owners across the country. Part 1 covered some of the biggest sub-sector spending plans. Part 2 will continue to look at broad industry groupings Canada-wide, but will then delve into regional-specific findings.
Part 1 discussed the two largest owner categories within non-residential construction – “mining and oil and gas extraction” and “public administration”. The third largest sub-category is “utilities” (13.2% of the total in 2013). New construction by utility owners will record a good gain in 2013 of 4.6%, but won’t match 2012’s increase of 16.1%.
Two-thirds of utility construction spending this year will be on electric power generation, transmission and distribution. The current dollar level (i.e., not adjusted for inflation) can be expected to increase 2.9% year over year in 2013 after a +14.0% performance in 2012. (All of the data in the PPI report is in current dollars.)
Also within the utilities category, water and sewage work (20.5% of the total) will rise 10.7% in 2013 year over year. In 2012, there was an upward jump in spending of 25.5%.
Moving on to other industrial categories, projected capital spending by owners in retail trade is one of the true bright spots in the PPI report. For all of Canada, investment in store square footage will climb 20.2% in 2013 on top of a 25.2% increase in 2012.
It’s easy to confirm this finding. A quick perusal of newspapers across the country reveals expansion plans by one mall or another on a seemingly daily basis. For example, Toronto’s largest shopping centre, Vaughan Mills, has just announced it will be adding more space.
Wholesale trade, which in many ways is the smaller sister of retail trade, also has a construction spending outlook that is positive, +20.2% this year to augment a 16.9% gain last year.
“Transportation and warehousing” is another category with a strong investment outlook, +18.7% in 2013 on top of +11.1% in 2012. Included here are some interesting and perhaps unexpected sub-sets.
The largest is pipeline transportation, in which planned investment will rise a healthy 31.2% in 2013 after a 19.7% gain in 2012. But realization of planned spending this year will depend to some extent on winning environmental approvals from oversight agencies.
Two other sub-categories are worthy of mention. First, the “transit and ground passenger transportation” category will post a 19.1% rise year over year in 2013 after a 5.4% gain in 2012. This is an area where many municipal and provincial governments, on account of local demographic changes, don’t feel they can stint on outlays.
And second, capital spending on rail transportation will be up 3.0% this year, which will be a turnaround from 2012’s -10.7%. Railroad companies are expanding facilities (e.g., holding tanks) to move more oil across the country. They’re also placing orders for more tanker cars.
Owners in the “accommodation and food services” sector are planning to reduce new construction by 2.7% in 2013. In 2012, their investment spending was more upbeat at +8.4%. While there will be some retrenchment in 2013, at least one high-profile hotel project is expected to go ahead, most notably in Niagara Falls.
There are other categories in the PPI report for which 2013 results are surprisingly negative. For example, new stadium or arena construction is planned or underway in at least four cities – Edmonton, Regina, Hamilton and Quebec City. But the “performing arts, spectator sports and related industries” sub-set within “arts, entertainment and recreation” is showing minimal dollar spending change in 2013 ($117 million) versus 2012 ($126 million) and 2011 ($122 million)
The same goes for casino construction, despite the plan to add a couple of major venues in the Toronto region. Allocated to “amusement, gambling and recreation industries”, 2013 spending will be less than in 2011 and only slightly higher than in 2012.
Perhaps most difficult to fathom is manufacturing, where owners will be pulling back investment by 20.2% in 2013 after an expansion pace of 24.2% in 2012.
One would assume the manufacturing numbers would be dominated by Ontario, but that’s not the case. This becomes easier to understand once one learns that the largest industrial sub-sector within manufacturing (for new construction) is “petroleum and coal” production – i.e., gasoline refining – which is spread out across the country and where the dollar spending will plummet 65.5% in 2013 after rising 18.0% in 2012.
In Ontario, investment by the super-important auto sector is in some doubt. General Motors has announced it will be shifting production of its Camaro sports car line from Oshawa to Lansing, Michigan. Many of the 4,000 workers in GM’s plant east of Toronto will be keeping their fingers crossed that the next-model launch of the Impala proves to be successful. Some measure of comfort can be taken from the fact GM has committed to keeping 16% of its North American auto production in Canada out to 2016.
It’s time to bore deeper into some of the key regional trends.
For example, what are the investment plans of firms in Alberta’s large “oil and gas extraction” sector? After raising their new construction spending by 7.6% in 2012, they intend to lower their outlays by 1.8% in 2013.
In the Atlantic Region, Newfoundland and Labrador will dominate the construction scene. In 2013, its share of the construction total for the four provinces on our eastern boundary will be 51.0%. Offshore oil work and electric power construction will provide the province’s pizzazz, with the former +52.0% year over year in 2013 and the latter +46.8%.
Utility (i.e., mainly electric power) construction in Quebec will be +5.5% in 2013, after a 14.4% increase in 2012. Manitoba utility work (i.e., hydroelectric projects) will increase 35.8% this year after a 40.7% expansion last year.
B.C. features a mixed bag. Mining and oil and gas spending will plunge 23.5% in 2013; utilities will be flat (+1.0%); and manufacturing will skyrocket 80.9%. The latter’s large gain will be thanks to the modernization project at Rio Tinto Alcan’s aluminum smelter in Kitimat. In fact, B.C. will be the province accounting for the biggest share (35.7%) of the nation’s manufacturing capital expenditures this year.
It also appears that planned spending on pipelines in B.C. will continue to pick up the pace this year (+36.7%), after a solid gain in 2012 (+14.1%).
Let’s back up to Alberta again for a second. I talked earlier about its oil and gas extraction sector. What about transportation and warehousing work (i.e., pipelines)? This category plans a spending increase of 30.1% in 2013 in addition to 2012’s +20.4%.
Highlighted in Part 1 was the observation that Alberta will experience more construction spending than any other province in the country in 2013, including second-place Ontario. Public spending will keep the two provinces relatively close overall, but if one looks at only private-sector spending, Alberta’s lead will be remarkable – a dollar volume 29.5% higher than its closest rival (Ontario).
I also pointed out in Part 1 that the “public administration” category is only a small part of total government spending. It covers prisons and roads and highways. One also has to add in most electric power work, transit projects (under “transportation and warehousing”), schools and hospitals to reach the total for the public sector.
Therefore, on an expanded basis, the public sector will account for 22.9% of grand total new construction in 2013. More impressively, it will comprise 36.2% (or approaching 40%) of total non-residential construction work.
For more articles by Alex Carrick on the Canadian and U.S. economies, please see his market insights. Mr. Carrick also has an economics blog.
