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Alex Carrick, Chief Economist at ConstructConnect
Alex Carrick, Chief Economist at ConstructConnect
Alex Carrick is Chief Economist for ConstructConnect. He is a frequent contributor to the Daily Commercial News and the Journal of Commerce. He has delivered presentations throughout North America on the Canadian, United States and world construction outlooks. A trusted and often-quoted source for … More »

A Baker’s Dozen Mid-January Economic Nuggets

January 15th, 2016 by Alex Carrick, Chief Economist at ConstructConnect

Article source: CMDGroup

In the early going of 2016, the headline story has been the heightened level of anxiety displayed by stock market investors. Versus 2015’s year-end closings, both the Dow Jones Industrials index and the S&P 500 are -6.0%; NASDAQ is -7.8%; and the Toronto Stock Exchange, -5.2%.

Compared with their most recent highs, the DJI is -10.7%; the S&P 500, -10.0%; NASDAQ, -11.8%; and the Toronto Stock Exchange (TSX), -20.5%. The TSX has given its passengers a particularly bumpy ride. It has fallen into ‘bear’ territory (i.e., a decline of 20% or more.)

The main widely-cited reason for the sell-offs has been an expectation of weaker growth in China. There are two highly-charged ways in which such a pull-back has unfortunate repercussions for the U.S. and Canadian economies. First, the value of the yuan is being lowered, to make the price of Chinese exports more competitive in world markets.

Second, reduced output in China adds to the drag on global commodity prices. It’s one more reason for the price of oil to sink further. This is having devastating impacts on energy sector investment in Canada and it is causing worries about the viability of loans made to exploration and drilling firms in the U.S.

Against the foregoing backdrop, there are the following additional ‘nuggets’ gleaned from the latest government and private-agency statistical releases.

(1) Let’s talk about our own year-end starts data first. According to CMD, total U.S. non-residential starts in 2015 were up by a modest degree, +1.9%, compared with the same January-to-December period of 2014. Among major type-of-structure sub-categories, year-over-year percentage increases were recorded by ‘warehouses’ (+42.7%); ‘manufacturing’ (+32.8%); ‘bridges’ (+11.7%); ‘water/sewage’ (+10.6%); ‘roads/highways’ (+9.2%); ‘retail’ (+7.3%); and ‘hotels/motels’ (+3.7%).

(2) Major declines in project initiations among CMD’s type-of-structure categories, full-year 2015 compared with full-year 2014, were recorded by ‘schools/colleges’ (-4.5%); ‘hospitals/clinics’ (-13.7%); ‘government office buildings’ (-18.6%); and ‘private office buildings’ (-32.6%).

(3) The above-mentioned deeply negative private office building number (-32.6%) is an overstatement. Both call centers and data centers, which contain large office-space components, are categorized to ‘warehouses’, reported in point (1) as +42.7%. There were ground-breakings on several mega-sized data and call center projects across the U.S. in 2015.

(4) Regionally, the ten states with the largest dollar volumes of non-residential building starts last year were: Texas, ($24.9 billion); California ($18.1); New York ($11.4); Florida ($9.4); Louisiana ($7.4); Illinois ($6.0); Ohio ($5.8); North Carolina ($5.5); Pennsylvania ($5.2); and Massachusetts ($5.0). The five states with the largest year-over-year non-residential building starts increases were: Louisiana (+109.7%); Tennessee (+64.3%); South Dakota (+58.7%); Nevada (+49.4%); and Texas (+43.2%).

(5) Also according to CMD, the ten states with the highest volumes of heavy engineering/civil starts last year were: Texas ($12.3 billion); California ($10.9); New York ($7.8); Illinois ($6.6); Florida ($6.4); Pennsylvania ($5.4); Ohio ($4.3); North Carolina ($3.9); Michigan ($3.1); and Wisconsin ($3.1 billion as well).

(6) The five states with the greatest year-over-year percentage gains in heavy engineering/civil starts were: West Virginia (+120.7%); Delaware (+60.6%); Nevada (+59.3%); Wisconsin (+52.9%); and Kansas (+45.1%). Connecticut (-29.3%), New Mexico (-30.9%) and Utah (-31.0%) recorded the steepest drops.

(7) The U.S. economy added 292,000 jobs in December. That was the second-highest monthly increase last year. For 2015 as a whole, the jobs gain was 2.7 million (or +1.9% annually). That lowered the seasonally adjusted unemployment rate from 5.6% in December 2014 to 5.0% in the final month of 2015. Construction’s year-over-year jobs jump of +4.2% was fastest among all major industrial sub-sectors. ‘Professional and business services’ was next, at +3.1%, followed closely by ‘education and health services’, +3.0%, and ‘leisure and hospitality’, +2.8%.

(8) Employment in the ‘oil and gas extraction’ sector, though, was a not unexpected, but still disastrous, -8.3%. The personnel count in lawyers’ offices hardly made any progress, at only +0.7%. Architectural and engineering firms increased hiring by 2.5%. Accounting and bookkeeping offices added staff at a 4.8% pace. Year-over-year production-line work with motor vehicle assemblers and parts manufacturers was +3.0%. Best of all, the payrolls of computer systems and design services swelled by 5.0%.

(9) The most recent Job Openings and Labor Turnover (JOLTS) report from the Bureau of Labor Statistics contains fascinating reading. The latest annual increase in the total number of U.S. nonfarm job openings was +11.2%. Construction job openings were +3.8% year over year, but that paled beside ‘health care and social assistance’, +34.2%, and ‘accommodation and food services’, +22.2%. The only major employer category with a year-over-year jobs-opening decline was manufacturing, -11.4%.

(10) Speaking of U.S. manufacturing, the latest Purchasing Manufacturers’ Index (PMI) measurement from the Institute of Supply Management (ISM), at 48.2% in December on the heels of November’s 48.6%, was less than 50.0% for the second month in a row. History has established that when the PMI sits above 43.1%, but falls below 50.0%, ‘real’ (i.e., inflation-adjusted) gross domestic product is increasing, but the output level of manufacturers is contracting. The sales teams of U.S. manufacturers, hoping to make inroads into foreign markets, are fighting the headwinds of a stronger greenback.

(11) December’s U.S. current-dollar (i.e., not adjusted for inflation) retail sales were -0.1% month over month (m/m), but +2.2% year over year (y/y). Take out sales at the gas pump, however, and they were 0.0% m/m − still not so great − but +3.9% y/y, which was not really too bad. December’s year-over-year sales volume at gasoline stations was -14.6%. That degree of negativity was actually pretty good, given that gasoline prices are -24.1% y/y. This suggests drivers are filling up more than a year ago. U.S. motor vehicle and parts retail sales are +6.1% y/y; furniture and home furnishing store sales are +6.1% y/y; and non-store (a.k.a., web-based) consumer sales are +7.1% y/y.

(12) Look up Canada’s economy in the dictionary and there’s a picture of a deer caught in the headlights. There’s a further discount on the price of Western Canada Select (WCS) oil beyond what is being paid for West Texas Intermediate (WTI) crude. While WTI is selling below $30 USD per barrel, WCS is going for about $15 USD per barrel. At the same time, the value of the Canadian dollar (i.e., the ‘loonie’) has plummeted below 70 cents U.S. That’s actually fortuitous for Alberta and Saskatchewan oil producers. It raises the Canadian-dollar take from selling a barrel oil to almost $25.

(13) While licking its wounds in other areas, the Canadian economy has continued to find a measure of support in residential real estate markets. Home prices have been skyrocketing in Vancouver and Toronto. Monthly housing starts have generally been staying near a healthy 200,000-unit seasonally adjusted and annualized level. Did December just fire a warning shot, though, with a big dip in starts to only 173,000 units? Stephen Poloz, Governor of the Bank of Canada, is expected to implement another interest rate cut. Justin Trudeau, the nation’s Prime Minister, is promising to speed up a promised program of spending on infrastructure projects.

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Category: CMD Group

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