June 29, 2009

Economic Forecast

Reed Construction Data economist sees recovery in the next year

VINCE VERSACE

staff writer

Recovery from the recession will stretch out longer than most would like, but there is improvement on the horizon, says a construction economist.

“Construction costs and prices will begin to pick up because commodity prices and the market will be picking up within a year,” said Alex Carrick, chief economist with Reed Construction Data’s (RCD’s) CanaData.

“It won’t be just public sector work but also the private sector picking up again. The combo of supply and demand will cause construction costs and prices to start moving again, maybe as early as the end of this year or the first quarter of next year.”

Carrick presented his industry outlook for Reed Construction Data’s construction forecast for 2009-2010 via webinar last week.

He noted three distinct construction markets:

• Residential construction is currently depressed;

• Privately-funded non-residential, such as commercial, industrial, and oil and gas is depressed, but recent oil price increases will help restore energy sector investment;

• Publicly-funded non-residential, such as institutional, roads, highways and electric power, is where government stimulus will be important this summer and will ramp up in the fall.

“It is in the publicly-funded non–residential where the current hope is that projects will come on and are coming on,” noted Carrick.

“The bright spot will be the public sector — a year from now commodities will start to play a role as their prices are already starting to advance. Construction costs and prices are probably as low as they are ever going to get right now.”

The recovery will likely be a little more protracted than the construction industry would like, due to the deleveraging of the financial sector because banks are now required to keep more capital and there are fewer investment banks left in the United States, explained Carrick.

“Deleveraging on the lending side and deleveraging by consumers on the consumer spending side, because consumers are trying to get their balance sheets in shape, will play important parts in the recovery,” he said. “The whole slowdown will likely be more protracted but there will be a pickup in the economy and construction as well.”

Canada’s economy and industries like construction all took direct blows by last fall. Since last October, Canada has lost 350,000 jobs.

Also, oil prices reached $145 per barrel in mid-July last year and were as low as $35 per barrel this past February, noted Carrick.

“There were two watershed moments — the first was the peak of commodity (prices) in July and since then the Canadian economy has not been as strong,” said Carrick. “In late September, when the stock market collapsed, that brought it home for Canadians through their pension and mutual funds statements that the economy was turning south.”

For more information on the forecast and other CanaData resources, visit www.canadata.com

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