Article source: ConstructConnect

Where are we on the recession watch? In a nutshell, the flow of events is confusing. There are certainly reasons to suspect slower economic times are heading our way, and the difficulties that have arisen in the banking sector have done nothing to lighten the mood. Although, in a strange and unexpected twist, financial sector turmoil may be serving a beneficial purpose through causing the Fed to become more restrained in its interest rate tightening measures.

The latest rate hike was just 25 basis points (where 100 bps = 1.00%), only half the 50 bps climb that was taken for granted each time in 2022. The upper limit for the federal funds rate is now 5.00%, which many analysts (me included) think is restrictive enough. It establishes a key policy-setting rate that has gone beyond merely ‘neutral’.

Banking distress can perhaps be characterized as one of those ‘unintended consequences’ that arise from time to time when there is a shift in governing frameworks. But the Fed has an intended consequence in mind, a deceleration in GDP and a lifting of the unemployment rate, that is taking on the appearance of being unnecessarily punitive.

Without further ado, let’s proceed to an examination of some of the most recent information on the economy appearing in public and private sector data releases.

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Article source: ConstructConnect

Today, the Federal Reserve has chosen the middle path in raising its policy-setting interest rate by 25 basis points (where 100 basis points = 1.00). The target range for the federal funds rate is now 4.75% to 5.00%.

Worries about the banking sector not just in the U.S., but worldwide, placed the Federal Reserve in a bind with respect to its interest rate policy. SVB (Silicon Valley Bank) started the downhill ball rolling when its capitalization weakened as a result of interest rates climbing and depressing the value of its bond holdings.

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Article source: ConstructConnect

Much of Canadian construction activity ties to extraction (or harvesting) of the nation’s resources. Canada has such an abundance of resources that, with respect to most commodities, domestic demand can be readily satisfied, leaving a great deal of scope for export sales. The difference between big export dollar volumes and low import dollar volumes makes a significant contribution to gross domestic product (GDP).

In what follows, the capital spending prospects emanating from 17 Canadian material export categories are discussed and assessed. Beyond development at primary sites, there are also related undertakings in air, rail and road transportation to move product to border crossings and ports for out-of-country transportation. Plus, there are new initiatives in such fields as carbon capture and storage and hydrogen production plants.

Oil

In the 00s, Alberta arguably underwent the most spectacular building boom tied to one resource deposit in Canada’s history. Development of the Oil Sands in the northeast of the province drew in immense amounts of capital and attracted workers from across the country, especially the Atlantic Region, and from other countries. With the Oil Sands extending across the provincial border, Saskatchewan participated in the bonanza as well, to a lesser extent. Newfoundland and Labrador has also benefitted from oil development, but from offshore drilling fields.
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Article source: ConstructConnect

At +311,000, the U.S. number on net jobs creation in February, as calculated by the Bureau of Labor Statistics (BLS), was okay. It was neither truly exciting, nor in any way disturbing. It was down from the +504,000 performance in January, but it wasn’t the kind of figure that would signal a recession has arrived on everyone’s doorstep.

And that’s what we’re all watching for, indications of slowdown in the economy that might take it into negative ‘real’ (i.e., inflation-adjusted) GDP change territory. That’s not what was delivered in February’s jobs report.

But there’s a recent alternative labor market reading which, specifically for the construction industry, is concerning. It comes from the Job Openings and Labor Turnover Survey (JOLTS) and we’ll delve into that in a moment.

The U.S. economy-wide seasonally adjusted (SA) unemployment rate in February ticked up a little to 3.6% from 3.4% in January. On a not seasonally adjusted (NSA) basis, the U rate stayed the same as the month prior, at 3.9%.

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Article source: ConstructConnect

Since the Spring of last year, monthly total U.S. housing starts (annualized) have been on a downwards trajectory. The weakness in housing starts is one of the chief arguments for speculation that a recession is just around the corner.

Furthermore, the number of residential building permits, which is a leading indicator (by a month of two) for ‘starts’ is showing no signs of bottoming just yet. A key question, therefore, is when will the slide end?

Cluster Chart 1 shows that, in nearly every region, permits issued for single-family structures are the main, and in most cases sole, cause of the overall tapering off. Only in the Northeast are multiples showing a greater degree of settling down than singles. But it’s also true that only in the NE are multiples, in units, routinely a higher proportion of the total than singles.

What’s also the case, though, is that an interesting shift is underway. In the three other regions than the NE, the drops in single-family units, with accompanying relative stability in multi-family units, is leading to convergence. This is a situation that is not in keeping with historical data for the U.S. Throughout the decades, and for a variety of reasons, U.S. single-family starts have placed well above multi-family starts (both in units) as a proportion of total.
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