Construction Economic News

Continuing Support from Megas and Semi-Megas ConstructConnect announced today that March 2023’s volume of construction starts, excluding residential work, was $47.6 billion, an increase of +45.0% versus February 2023’s figure of $32.8 billion (originally reported as $33.0 billion).

Supply chain data collected by Federal Reserve banks across the United States have all reported quickening supplier delivery times since at least the end of 2022. In some geographies, supply chain performance has been steadily improving since mid-2022, and the pace at which improvement is occurring continues to accelerate rapidly. The greatest supply chain improvement appears to be along the East Coast, according to data collected by the Federal Reserves of New York and Philadelphia.

The March 10, 2023, collapse of Silicon Valley Bank, followed days later by the failure of Signature Bank, sent shockwaves through financial markets. The cause of their failures was similar in that both experienced dramatic deposits growth in the years just prior to the latest surge in inflation and rates.

During March just passed, the DJI 30 index moved +1.9%; the S&P 500, +3.5%; and NASDAQ, +6.7%. The TSX stayed more or less flat, -0.6%. Only the Russell 2000, which reflects equity price movements for the 2,000 smallest publicly traded companies, was hesitant about putting a brighter face on things, backtracking -5.0% (Table 1).

There’s a shorthand way of looking at some of the key implications for the construction industry from the major push underway everywhere to reduce carbon emissions. It’s to consider how fossil fuels are used in production processes currently and what the opportunities are for their replacement by nonpolluting substitutes.

As a companion piece to ConstructConnect’s recent article on movements in U.S. construction material costs, today’s story will look at what’s been happening in Canada. Similar to America, Canada has seen moderation in prices for some individual construction inputs. On the whole, though, the Canadian easing has perhaps not been as extensive. Table 1 seems to support that assertion.

In 2021 and continuing into early 2022, construction material costs, with the pandemic in full swing and interest rates effectively zero, shot up on a year-over-year basis like never before (see Graph 1). Contractors were largely caught by surprise and did not feel they could raise their bid prices right away. Individually, they were worried about winning contracts and surviving.

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 by causing the Fed to become more restrained in its interest rate tightening measures.

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%.

Much of Canadian construction activity is tied to the 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.