Strong retail sales and construction commitments say no to recession


Currently, there are many negative factors at play. One could easily cite the psychological and other disturbing impacts of the fighting in Ukraine; ongoing supply shortages that are only slowly being resolved; an affordability crisis, especially for first-time buyers, in residential real estate; general price inflation that shows few signs of abating; and the central bank is taking steps to raise interest rates.

These are probably the main concerns that give rise to speculation, voiced by some analysts, that the US and Canadian economies could be heading into recession.

However, counterbalancing such a notion are warm optimistic messages from some of the latest data releases and statements from the private sector regarding spending plans.

Consumer spending accounts for more than half of gross domestic product (GDP) in the United States and Canada. The share south of the border is 70%; in the north, 56%. (In Canada, foreign trade represents a larger share of the overall economy.)

Retail trade accounts for a large portion of consumer spending. February 2022 total merchant revenue in the US was +15.9% year-over-year. Canada’s latest year-over-year increase, but for January, was +12.0%.

There is no doubt that some of these year-over-year sales gains, expressed in “current” dollars (i.e. non-inflation-adjusted dollars), were due to increases considerable prices. For example, gas station sales soared mainly because the price of gasoline took off (i.e., it rose by a third or more year over year). other in the United States and Canada).

But put the +15.9% YoY retail sales gain in the US alongside a +7.9% increase in the Consumer Price Index (CPI) and that means a significant part of the increase was still “real”.

Similarly, in Canada, the +12.0% y/y jump in retail trade outpaced the +5.1% y/y increase in the CPI in the same month.

Incidentally, according to Statistics Canada, the gain in retail sales in Quebec in January was +25.0% y/y, with Montreal at +29.0%. (Toronto was +15.1% y/y and Vancouver, +11.0%).

Buckets of money available for retail spending

Retail sales are propelled by pent-up demand. For example, there was no need to upgrade wardrobes during the pandemic because few people were commuting to work, gathering for family functions, or going on trips. But now, with the ongoing rebound, clothing sales are +30.3% y/y in the United States (graph 2) and +63.2% in Canada (graph 11).

Plus, surging savings earlier means there’s money available to splurge when the mood takes you.

Nor is the supply of funds for expenses likely to run out any time soon. Job creation has been on a tear. Wages and other forms of income have risen intelligently. Unemployment rates in the United States and Canada, at 4.1% and 4.5% respectively (unadjusted/NSA), are about as low as you can get.

To find matches with the minimum number of initial weekly jobless claims currently recorded in the United States, at around 200,000 (Chart 8), one must go back to the late 1960s.

A coming tsunami of investment in mega manufacturing

In addition, construction will soon contribute directly to economic growth through a significant number of very large projects. Capital spending by manufacturers will almost certainly provide a next big round of construction projects and investment in machinery and equipment.

All major automakers (GM, Ford, Stellantis, VW, Toyota, Honda, etc.) have pledged to dramatically expand production of electric vehicles (EVs) and battery electric vehicles (BEVs) to meet ambitious targets of carbon reduction by the 2030s.

The same companies, along with new entrants (Tesla and Rivian) and aligned partners (Panasonic, LG Energy, CATL and Koch Industries), will proceed with large-scale battery production plants.

The computer chip giants (Intel and Samsung) are pushing ahead with tens of billions of dollars in expansion spending in Arizona, Ohio and Texas.

US Steel and Nucor will each invest $3 billion in new electric arc furnace (EAF) capacity in Arkansas and Virginia.

Nor can it be said, with a few exceptions, that these projects are optional. Given the direction economic issues are taking, given supply shortages and the emphasis on a cleaner environment, they are critical to the long-term viability and survival of their owners.

This raises the likelihood of large expenditures for other types of closely related projects.

There will be new hydrogen production plants. In addition, carbon capture and storage facilities will become more common.

Construction megaprojects are poised to resume their role as the primary force in GDP growth.

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Alex Carrick is chief economist for ConstructConnect. He has given presentations throughout North America on construction prospects in the United States, Canada and around the world. Mr. Carrick has been with the company since 1985. Links to his many articles are posted on Twitter @ConstructConnxwhich has 50,000 subscribers.


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