Canadian investment in building construction is soaring. Typically the leading indicator would mean a robust real estate market is coming. That may not be the case this time, according to Statistics Canada (Stat Can) data. Once the agency adjusts for inflation, investment in building construction contracts. The entire increase for investment (and then some) have just been non-productive inflation.
Canadian Investment In Building Jumps Fell 4% After Inflation
Total investment in building construction appears to be much higher. In November, all segments reached $19.1 billion, down 0.8% from the previous month. Compared to last year, the value is 10.9% higher. Monthly declines aren’t all that important going into the end of the year since winter will do that. Year-over-year annual growth is what we’re looking for, and 10.9% is massive. However, there’s a bit of a catch.
Canadian Investment In Building Construction Growth
The 12-month percent change in the value of residential building construction, in both current and real (inflation-adjusted) terms.
Source: Statistics Canada; Better Dwelling.
Canadian investment in building construction doesn’t actually grow when inflation-adjusted. Monthly growth for November falls to -0.7%, actually contracting. Compared to a year before, it’s 3.9% lower than the same month. Stat Can calculations show a 10.9% annual increase is a 3.9% contraction adjusted for inflation. A lot of takeaways here, but the impact of inflation stands out the most.
Canadian Real Investment In Home Construction Fell 5%
Breaking down building investment construction, the majority was for residential buildings. The segment represented $14.1 billion of investment in November, down 1.3% from the previous month. Compared to the year before, the month is 11.89% higher. Robust growth disappears once inflation is considered.
Real (inflation-adjusted) residential building investment is contracting even further. Monthly growth turns negative for November, falling 1.2% from the previous month. Annual growth also drops 4.8% compared to the same month a year before. Once again, significant growth, but it’s all eaten up by inflation.
Real Non-Residential Building Is Down 1.8% From Last Year
Non-residential building investment includes commercial, institutional, and industrial buildings. The segment rose to $5.0 billion in November, up 0.5% from the previous month. It was 8.5% higher than the same month a year before. Unlike residential investment, this area of investment hasn’t grown like housing. No need for infrastructure or shopping apparently.
Non-residential construction investment shows more tame growth when inflation-adjusted. In real terms, November’s numbers were 0.5% higher than the previous month. Annual growth is 1.8% lower than the same month last year. Inflation turns growth into a contraction, but not to the same extent as residential has seen.
Stat Can’s adjustments show inflation has a bigger impact than headline CPI suggests. As a result, the investment capital won’t produce as many positive economic benefits. This highlights how non-productive the elevated “transitory” inflation has become. Especially if it isn’t transitory.
