Canada’s Construction Spending Weakens in October

Heading into the fall season, Canada’s economy entered yet another standstill as coronavirus cases began to rise to alarming levels, forcing some regions to reimpose restrictions and further social distancing measures. On the upside though, the country’s real estate market has been making record gains, with home sales and prices surging to new highs amidst all other economic turmoil. Indeed, with such a high demand for housing across the country, supply shortages are bound to be imminent, especially if investments into the construction sector begin to show weakness.

According to the latest Statistics Canada data, the month of October saw total investment into building construction fall by 0.4% to $15.2 billion, after dropping by 1.5% in September. The downward trend was largely fueled by lack of investment flow into the non-residential sector, which suffered a decrease of 3.2% to $4.4 billion in October – the fourth consecutive month of declines. Likewise, investment in commercial building construction was down by 4.7% to $2.2 billion, with declines being recorded in all provinces.

With respect to the industrial building construction category, a drop of 1.7% in investments was noted by Statistics Canada for the month of October, with declines occurring in eight provinces. On the contrary though, Prince Edward Island saw a surge in investments by 19.1% to $8.2 million, largely as a result of construction activity on the incubator manufacturing facility at BioCommons Research Park in Charlottetown. Institutional building construction investment only fell by 0.8%, predominantly fueled by declines in Quebec and Ontario. However, those decreases were offset by gains in British Columbia and Newfoundland and Labrador, as the latter province recently built a $43 million long-term care home.

On the contrary though, the residential construction sector saw positive gains in October, mostly as a result of the rising demand for housing among Canadians. This category saw investments grow by 0.7%, registering the sixth consecutive month of gains. A large part of the momentum was due to single-unit construction, which saw investments rise by a total of 3.7% to $5.5 billion across all provinces except for Prince Edward Island. As a matter of fact, investment in the construction of single family homes during the month of October was 7.7% higher than February’s pre-pandemic levels.

Certainly, the increases in investments in single family homes can be attributed to a shift in behaviour among homebuyers, especially amid the pandemic. As an increasing number of Canadians revert to working remotely – some even permanently – what was once a concept of a home now includes the need for an office, gym, and even school. This has caused many to rethink their current living arrangements, and has thus sparked an exodus out of compact downtown dwellings into suburban and rural communities.

Likewise, Statistics Canada data can help better illustrate the dwindling demand for shared housing such as condos and apartments, with multi-unit construction investment falling by 2.1% – the first weakening trend in five months. Investments fell in seven of the ten provinces, with Manitoba and Alberta registering declines of 24.6% and 9.2%, respectively.

Information for this briefing was found via Statistics Canada. The author has no securities or affiliations related to this organization. Not a recommendation to buy or sell. Always do additional research and consult a professional before purchasing a security. The author holds no licenses.

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