Last week, Statistics Canada released its annual investment intentions survey results for the coming year (2014). Completed over the period of October through January, the survey gauges the near-term investment intentions of a large number of private and public sector organizations across the country, with a focus on planned investment activity in three areas: residential building, non-residential structures, and machinery and equipment (M&E).
Overall, the survey paints a soft investment picture for Canada in 2014. Planned capital spending is expected to climb by just 1.4% from 2013 levels – the slowest pace of growth since the 2008-09 recession. By sector, the biggest (percentage) increases in investment are in transportation, arts/entertainment, wholesales trade, and finance. Declines are in store for the retail, utilities, health care and accommodation/foodservices sectors. The weakness in mining/oil and gas investment intentions (+0.1%) is consistent with lower global prices for minerals and metals, still sluggish North American natural gas prices, and the uncertainties associated with developing new infrastructure to move Canadian oil products to the US market.
Public sector investment is projected to grow by 1.9% this year, down from previous years when governments were ramping up capital spending to offset the effects of the recession and the sub-par economic recovery that followed in its wake. Even so, the advance in public sector capital outlays will still outpace the feeble 1.3% gain anticipated by the broad private sector.
Figure 1 shows the projected changes in capital spending by industry at the national level.
Figure 1: Changes in Planned Capital Spending by Sector and Industry, Canada, 2014
(% change from 2013)
We were surprised at the weak overall investment outlook for British Columbia. Total capital spending in the province – covering residential construction, non-residential construction, and machinery and equipment – is set to come in essentially flat this year compared to 2013 (measured in current dollars). If the housing sector is removed from the data, the picture changes slightly: non-residential construction investment is projected to decrease by 2.5%, investment in M&E edges up by 0.6%, and the two categories taken together are on track for a 1.5% decline.
Table 1 summarizes 2014 investment intentions for the ten provinces, looking separately at outlays for non-residential investment and for M&E (housing is not included in the table). On this basis, New Brunswick, Ontario and Alberta are in line for the biggest increases, while PEI and British Columbia look likely to experience the most significant drops.
Table 1: Investment Intentions by Province
(% change from 2013; excludes housing investment)
British Columbia’s poor showing on investment in M&E is particularly disappointing, inasmuch as this category of investment is critical in laying the foundations for future improvements in productivity. The 0.6% increase in M&E investment in BC compares unfavourably with the 3.9% jump expected for Canada. And it comes on the heels of a 5.5% fall in M&E investment last year – an outcome that partly reflects the province’s move to dismantle the Harmonized Sales Tax and revert to the antiquated Provincial Sales Tax regime, which has reduced the attractiveness of investing in BC for manufacturers and many other industries.
Looking at the data for BC in more detail, capital spending is poised to decline in mining and oil and gas extraction, health care, chemical manufacturing, retail trade, and real estate and leasing. The most significant gains are in wood products and paper manufacturing, utilities, wholesale trade, finance and insurance, transportation, and professional/scientific/technical services. Investment is also expected to rise modestly in the education sector and in the information and cultural industries.
At a time when the BC government’s Major Projects Inventory (MPI) is reporting record high levels of potential investment and provincial political leaders are talking up the prospects of developing a world-scale LNG industry, the Statistics Canada survey results seem somewhat incongruous. However, most of the significant capital projects identified in the MPI have not yet commenced, many are several years away, and some will never come to fruition at all. In addition, the MPI counts the total value of multi-year projects, whereas the intentions survey attempts to estimate capital spending in one year. The MPI is best thought of as a catalogue of planned and possible capital projects that are relevant over the medium- and longer-term; it is not a reliable predictor of near-term investment activity. Finally, the MPI captures investment in structures and excludes capital spending on M&E. So the information reported in the MPI differs from that collected in Statistics Canada’s annual investment intentions survey.
The survey findings suggest that BC Finance Minister Mike de Jong was prudent to assume a relatively low economic growth rate for 2014 for purposes of developing his new budget.
 Private sector investment includes housing construction.