RICS Q3 2020 Canada Construction Monitor Shows Industry Rebound in Q3

Respondents to the Q3 2020 RICS/CIQS Canada Construction Monitor were more upbeat both about the current picture and the outlook despite signs that the economic recovery is flagging in the face of an upsurge in new COVID cases. Significantly, the Bank of Canada has responded to a more challenging macro picture by signaling that interest rates will remain at current lows until the inflation target of two percent is “sustainably achieved.” On the Bank’s analysis, this does not occur until 2023. Respondents overall report that workloads rebounded in Q3, led by the infrastructure sector, with expectations returning to positive territory across sectors, though profit margins are still expected to remain under some pressure.

Infrastructure leads the way

Feedback shows infrastructure workloads picked up speed in the third quarter with indicators capturing this trend rising from +7 in (Q2) to +24. Private residential turned round from a negative reading last quarter to a modestly positive one, while private, non-residential work remained in negative territory, albeit less so that previously. Significantly, infrastructure is anticipated to remain the most buoyant part of the construction sector looking out over the next 12 months, which jibes with recent announcements from the Canadian government. This includes both the redirection of existing funds to support COVID resilience (announced in August) and the new C$10 billion, three-year package designed to drive growth and create jobs. Meanwhile the strong rebound in the housing market is viewed as likely to provide increasing support for private residential construction.

Headcount to improve slowly

Notwithstanding the firmer picture regarding workloads, employment in the sector appears to have slipped further, according to respondents. Though some improvement is anticipated over the course of the next year, the net balance reading only stands at +9. It is noteworthy that despite this, skills (or the lack of them) continue to be viewed as an obstacle to activity. Nearly half of respondents identified this issue as a barrier, the highest reading since the end of last year. Skilled trades and quantity surveyors are the two most problematic workforce areas.

Profits recovery delayed

Expectations for work may be improving but profits are lagging. The margin indicator is pointing to a further, smaller compression while the point estimates for tender prices and construction costs suggest that the latter could outstrip the former by two percent. Though labour costs are projected to rise over the next 12 months, material costs are viewed as likely to post even sharper increases.

“The infrastructure sector continues to anchor the recovery, which isn’t completely surprising, given that across the economy, the most robust business is being shown in activities deemed essential,” said Sheila Lennon, CAE, Chief Executive Officer, CIQS. “Overall, the responses are cautiously encouraging, and we will monitor over Q4 how the government stimulus and slowly increasing workloads impact the overall building sector.”

“Rising labour and material costs will dampen some of the increased workloads, but the optimism in the survey compared to Q2 suggests that we are pulling out of the depths of the slowdown,” said Simon Rubinsohn, Chief Economist, RICS. “Still, the skills shortage appears to continue to be an impediment to recovery, aligning with the view that the slowdown is exacerbating cracks already present in the built environment and accelerating change.”

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