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Construction slowdown looms

VIRGINIA GALT

Globe and Mail Update

August 7, 2008 at 6:22 PM EDT

 

The head of construction powerhouse EllisDon said Thursday he is “very wary and very concerned” about where the Canadian economy is going.

 

“I am worried right across the country that things are tightening up and that a year from now we are going to see a drop-off,” Geoff Smith, the company's president and chief executive officer said in an interview after Statistics Canada reported that the total value of building permits fell 5.3 per cent in June to $6.3-billion.

 

Economists had projected a decline in the value of building permits issued in June, but not of the magnitude that Statistics Canada reported. The consensus had been for a 1 per cent drop

 

Mr. Smith expressed concern for the construction industry as a whole Thursday, although EllisDon has not yet experienced a drop in demand for the heavy construction in which it specializes.

 

“Over the short term, we [at EllisDon] are still seeing a reasonably healthy market. A lot of that is in public sector work and infrastructure rebuilding work,” he said.

 

“But I certainly understand that once you get outside of that space, the big hospital and infrastructure spending, that things are quite tight in the industry,” Mr. Smith said.

 

Statscan reported Thursday that the slowdown in the residential sector resulted in a month-to-month decline of 4.4 per cent to $3.6-billion in June. And in the non-residential sector, the value of permits decreased by 6.6 per cent to $2.8-billion, due to declines in industrial and commercial building intentions, Statscan reported.

 

Mr. Smith said major commercial and industrial customers are being “more careful” about committing to new projects. However, the outlook is not nearly as bleak as in the 1990s, “where things just dried up very dramatically,” he said.

 

The market is cooling, but new projects are still being planned, added Sandy McNair, president of Toronto-based Altus InSite, which conducts market research for governments, lenders, building managers and the heavy construction industry.

 

“No-one's gone crazy and thinking they are going to start 30 new buildings tomorrow. But on the other hand, there is no sense that the sky is falling and our world is about to end either,” Mr. McNair said.

 

Toronto-Dominion Bank economist Millan Mulraine said in a research note that the decline in the value of building permits was broad-based – and “on a city-by-city comparison, the report was fairly ugly.”

 

The value of permits issued in Montreal was down 12.1 per cent, in Calgary down 15.2 per cent, in Vancouver down 13.4 per cent and in Saskatoon down 16.7 per cent, Mr. Mulraine wrote, adding that the overall value of building permits is now 9.1 per cent lower than in the corresponding period last year.

 

Merrill Lynch economist David Wolf said in an economic report Thursday that Canada's housing market is entering a “sustained downturn” and he expects Canadian home builders to pull back “substantially” in response.

 

Bank of Montreal economists had expected June building permits to decline 3.1 per cent, “as the housing market continues to cool and non-residential intentions retrace part of the prior month's massive gain,” the bank said in a research note.

 

The steepest decline occurred in Ontario, where the value of building permits was down 7.9 per cent to $2.3-billion, due mainly to a 15.8 per cent decline in plans for non-residential buildings, Statscan said. The decline in Ontario's residential sector was 1.7 per cent.

 

Alberta posted a 7.5 per cent decline, due to a 19.6 per cent drop in the residential sector. British Columbia and New Brunswick also experienced declines in both the residential and non-residential sectors, Statscan said.

 

“In contrast, intentions rose 3.5 per cent in Quebec, with gains in both the residential and non-residential sectors.”

 

Overall, there was a slight increase in the value of permits issued for single-family residences – up 1.8 per cent to $2.3-billion.

 

But there was a sharp drop in the value of permits issued for multiple-family dwellings.

 

“Municipalities issued $1.3-billion worth of permits for multi-family housing in June, down 13.8 per cent, a second consecutive monthly decrease. Most of these declines occurred in Ontario and Alberta,” Statscan said.

 

“It is now becoming clear that the Canadian housing market is continuing to cool, as the level of activity moderates to more sustainable levels,” the TD Bank said in its research note.

 

“And we expected this correction to continue at a measured and orderly pace.”

 

Mr. McNair said the month-to-month data on non-residential building activity tends to be “lumpy” because these tend to be larger projects “and the decisions don't get made evenly spread out across the 12 months of the year.”

 

There is “a reasonable level of activity going on across the country” right now, he said.

 

“Edmonton has never had more construction activity in 20 years in terms of office building activity. Calgary is extremely active as well. Toronto has a healthy level of construction activity going on right now. Ottawa, even Montreal, have a healthy level of activity under way,” Mr. McNair said.

“They have got their permits and they are building them out.”

 

Mr. McNair said the residential sector appears to be stable as well, although construction activity is moderating from the rapid pace of the past few years.

 

“It [residential] is moderating, but it's not going over a cliff the way it has in the United States,” he said.

 

 

 

Comme si c`était surprenant que Montreal aille bien..... Globe and mail cr**

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