The negative impact of COVID-19 on non-residential investment in 2020 was highlighted in the Gross Domestic Product, Income and Expenditure Accounts released at the beginning of March 2021. After a slight gain of +1.1% in 2019, lockdowns implemented to limit the spread of the virus caused non-residential fixed investment to contract by -13% in 2020. All three of the sector’s major components retreated during the year, led by a -16% decline in spending on machinery and equipment that was closely followed by a -14% drop in engineering structures. Non-residential construction also retreated, -5%, although strong gains in the construction of transportation and warehousing facilities partly offset declines in other industrial categories.
Following the above-noted coronavirus-induced pause, there is clear evidence that both private and public organizations are planning to put more shovels in the ground in 2021 than in 2020. This more upbeat outlook is supported by four recently released forward-looking indicators.
First, the Bank of Canada’s Winter Business Outlook Survey reported that the net percentage of firms planning to boost their investment in machinery and equipment over the next 12 months jumped from 2% to 26%, its second-highest level since the fourth quarter of 2018. The Bank also noted that firms’ spending plans improved across all regions.
The positive investment outlook indicated by the Business Outlook Survey was reinforced by theConference Board in Canada’s latest (Q1/2021) Index of Business Confidence. It reported that 58% of respondents planned to increase their investment spending over the next six months. The share of firms planning to scale back their spending declined from 17% to 13%, well below the high of 55% reached by the series in the second quarter of last year. These stronger investment plans are consistent with the survey’s findings that the net percentage of firms expecting stronger growth ahead rose from -7% in Q4/20 to +10% in Q1/21. Also, the share of respondents expecting their financial positions to improve in the next six months increased from 32% to 46%.
Despite the depressing effect of COVID-driven lockdowns on aggregate demand and employment, its impact on corporate profits has been relatively muted. Following a decline of -1.7% in 2019, total after-tax profits retreated by -3.3% in 2020. After-tax profits of non-financial firms decreased by just -1.3% last year, following a -7.4% decline in 2019.
Going forward, the effects of stronger after-tax profits, up by +25.8% in the final quarter of 2020, a rebound of investor confidence, reflected by the 30% rise in the S&PTSX stock price index since March 2020, and interest rates at record lows, support the view that non-residential construction will pick-up steam this year and next.
Given these positive fundaments, it’s no surprise that the most comprehensive indicator of capital spending intentions, Statistics Canada’s Non-residential Capital and Repair (CAPEX) Survey, released on February 26, clearly signals that non-residential investment will pick up speed in 2021.
On the heels of a -9.2% drop in 2020, respondents to the survey reported that they plan to ramp up their spending on non-residential construction and machinery and equipment by +7% this year. In 2021, the survey indicates that gains in both public (+9.3%) and private (+5.6%) sector spending will contribute to this growth. Most (70%) of the gain in total non-res CAPEX will be due to a +7.5% rebound in construction spending. Planned spending on machinery and equipment is projected to be +6.2%.
Across the country, capital spending plans have risen in seven of the ten provinces. Spending should increase in Quebec by +10.9%, followed by Ontario, +9.1; Alberta, +5.1%; and British Columbia, +5.7%. Smaller increases are indicated for Saskatchewan, +3.4%, and Manitoba, +0.6%. After posting growth of +9.4% in 2020, non-res CAPEX in Prince Edward Island is projected to decline by -11.5% this year due to weakness in both public and private capital expenditures. Spending is also projected to step back in Newfoundland and Labrador, -6.1%, and in Nova Scotia, -1.8%.
From an industry perspective, 14 of the 20 industrial sectors are reporting plans to invest more this year than last. Topping the list is the transportation and warehousing sector. It is projected to spend a record $47.9 billion this year, up from $44 billion in 2020. Spending on transportation projects alone is projected to increase by +10.4% to $12.3 billion and includes $6.3 billion to complete the Reseau Express in Montreal, $4.7 billion for the second phase of Ottawa’s light rail transit project, and ongoing work on Toronto’s Metrolinx Eglinton Crosstown light rail project.
Also, within the transportation sector, pipelines and transportation support activities, mostly located in British Columbia and Alberta, are projected to increase by $1.2 billion to $23.7 billion. Consistent with Economic Snapshot, Vol. 19, Issue 4 titled, Vaccines and Higher Oil Prices Will Energize Alberta This Year and Next, the CAPEX survey report says, “capital spending in mining, quarrying, and oil and gas extraction is anticipated to increase to $32.9 billion (+5.2%) in 2021”.
To date, the distribution of COVID vaccines in Canada has lagged most developed countries. Consequently, the outlook for the economy in general and non-residential capital spending will hinge on a more rapid distribution of vaccines, leading to a steady decline in the incidence of COVID in the near term.
John Clinkard has over 35 years’ experience as an economist in international, national and regional research and analysis with leading financial institutions and media outlets in Canada.
2021 private and public sector non-residential capital spending intentions, Canada and the provinces
Data Source: Statistics Canada. Chart: ConstructConnect — CanaData.
TORONTO – Canada’s main stock index was down more than 200 points in late-morning trading, weighed down by losses in the technology, base metal and energy sectors, while U.S. stock markets also fell.
The S&P/TSX composite index was down 239.24 points at 22,749.04.
In New York, the Dow Jones industrial average was down 312.36 points at 40,443.39. The S&P 500 index was down 80.94 points at 5,422.47, while the Nasdaq composite was down 380.17 points at 16,747.49.
The Canadian dollar traded for 73.80 cents US compared with 74.00 cents US on Thursday.
The October crude oil contract was down US$1.07 at US$68.08 per barrel and the October natural gas contract was up less than a penny at US$2.26 per mmBTU.
The December gold contract was down US$2.10 at US$2,541.00 an ounce and the December copper contract was down four cents at US$4.10 a pound.
This report by The Canadian Press was first published Sept. 6, 2024.
TORONTO – Canada’s main stock index was up more than 150 points in late-morning trading, helped by strength in technology, financial and energy stocks, while U.S. stock markets also pushed higher.
The S&P/TSX composite index was up 171.41 points at 23,298.39.
In New York, the Dow Jones industrial average was up 278.37 points at 41,369.79. The S&P 500 index was up 38.17 points at 5,630.35, while the Nasdaq composite was up 177.15 points at 17,733.18.
The Canadian dollar traded for 74.19 cents US compared with 74.23 cents US on Wednesday.
The October crude oil contract was up US$1.75 at US$76.27 per barrel and the October natural gas contract was up less than a penny at US$2.10 per mmBTU.
The December gold contract was up US$18.70 at US$2,556.50 an ounce and the December copper contract was down less than a penny at US$4.22 a pound.
This report by The Canadian Press was first published Aug. 29, 2024.
The crypto market has recently experienced a significant downturn, mirroring broader risk asset sell-offs. Over the past week, Bitcoin’s price dropped by 24%, reaching $53,000, while Ethereum plummeted nearly a third to $2,340. Major altcoins also suffered, with Cardano down 27.7%, Solana 36.2%, Dogecoin 34.6%, XRP 23.1%, Shiba Inu 30.1%, and BNB 25.7%.
The severe downturn in the crypto market appears to be part of a broader flight to safety, triggered by disappointing economic data. A worse-than-expected unemployment report on Friday marked the beginning of a technical recession, as defined by the Sahm Rule. This rule identifies a recession when the three-month average unemployment rate rises by at least half a percentage point from its lowest point in the past year.
Friday’s figures met this threshold, signaling an abrupt economic downshift. Consequently, investors sought safer assets, leading to declines in major stock indices: the S&P 500 dropped 2%, the Nasdaq 2.5%, and the Dow 1.5%. This trend continued into Monday with further sell-offs overseas.
The crypto market’s rapid decline raises questions about its role as either a speculative asset or a hedge against inflation and recession. Despite hopes that crypto could act as a risk hedge, the recent crash suggests it remains a speculative investment.
Since the downturn, the crypto market has seen its largest three-day sell-off in nearly a year, losing over $500 billion in market value. According to CoinGlass data, this bloodbath wiped out more than $1 billion in leveraged positions within the last 24 hours, including $365 million in Bitcoin and $348 million in Ether.
Khushboo Khullar of Lightning Ventures, speaking to Bloomberg, argued that the crypto sell-off is part of a broader liquidity panic as traders rush to cover margin calls. Khullar views this as a temporary sell-off, presenting a potential buying opportunity.
Josh Gilbert, an eToro market analyst, supports Khullar’s perspective, suggesting that the expected Federal Reserve rate cuts could benefit crypto assets. “Crypto assets have sold off, but many investors will see an opportunity. We see Federal Reserve rate cuts, which are now likely to come sharper than expected, as hugely positive for crypto assets,” Gilbert told Coindesk.
Despite the recent volatility, crypto continues to make strides toward mainstream acceptance. Notably, Morgan Stanley will allow its advisors to offer Bitcoin ETFs starting Wednesday. This follows more than half a year after the introduction of the first Bitcoin ETF. The investment bank will enable over 15,000 of its financial advisors to sell BlackRock’s IBIT and Fidelity’s FBTC. This move is seen as a significant step toward the “mainstreamization” of crypto, given the lengthy regulatory and company processes in major investment banks.
The recent crypto market downturn highlights its volatility and the broader economic concerns affecting all risk assets. While some analysts see the current situation as a temporary sell-off and a buying opportunity, others caution against the speculative nature of crypto. As the market evolves, its role as a mainstream alternative asset continues to grow, marked by increasing institutional acceptance and new investment opportunities.
