Week of February 17
He Shoots! He Scores!
I’ve been struggling over the last few days over how to start this newsletter. But those of you that know me know that I’m a huge hockey fan, and if you’re anything like me you woke up Friday sleep deprived after watching an amazing hockey game. So it seems unavoidable that I can talk about anything but hockey.
I’ve watched a lot of high-stakes international games in my life. I remember watching The Miracle on Ice in 1980 and cheering for the U.S. against Russia. I remember being star-struck when I first met Jim Craig at a Dodge conference a few years ago. I was living in Boston when Sydney Crosby scored the Golden Goal in 2010 and recall feeling homesick for the first time ever as I was getting calls from friends and family celebrating on the streets of Ottawa, Toronto, and Vancouver.
Thursday’s game between the U.S. and Canada was some of the best hockey this planet has ever seen. But this game felt different. This game was tense, and it felt like a lot more was at stake than a trophy. For those of you that have kids who play sports, we’re told as parents to not have a stake in the outcome…to enjoy the process and your child’s participation. That’s really hard to do when players are wearing their national colors.
But when you look at the game through that parental lens it does look different. You saw two teams filled with talent. You saw two teams where the players would do anything to support their teammates, from jumping into a missed opportunity to having someone’s back if they were getting pushed around. The outcome of the game, no matter how you view it, seems to pale against the spectacle that that game was and what it meant to the players.
I’m not sure if there’s any hidden economic message in these introductory paragraphs other than to say that, like the players, we all feel like there’s a lot at stake in how Canada and the U.S. are getting along right now. Tariffs are a huge concern for both economies and as a proud citizen of both countries I feel this tension in my bones.
I’m not sure how tariffs will play out, but personally I can’t wait till the 2026 Winter Olympics when the world will again see the best hockey players in the world wearing their national sweaters. In the meantime, I’m putting the jersey I wore Thursday away and getting back to focusing on how to help the construction industry … regardless of any border.
Important Data Points From The Past Week
Canadian Housing Starts
In January, Canadian housing starts rose 3% from December to a seasonally adjusted annual rate of 239,739. Multifamily starts rose 4%, single family starts lost 2%, and housing starts in smaller areas were 9% higher. On a year-over-year basis, total housing starts were up 4%; with multifamily starts moving 8% higher, single family starts up 1%, and housing starts in smaller areas down 17%. From December, housing starts rose in Quebec, Atlantic Canada, and the Prairie provinces, but they posted sizeable declines in Ontario and British Columbia.
The Canadian housing market is at somewhat of a crossroads. The Bank of Canada has been much more aggressive in cutting rates than their friends south of the border, but those cuts have not really materialized in significantly lower mortgage rates. Indeed, a large number of mortgages in Canada are due to renew over the next two years, and they will be renewing at rates higher than when they last reset. So homeowners and potential buyers will be feeling the pinch at a time when Canadian household debt is at record levels. Additionally, if widespread tariffs take hold in Canada the economy may flirt with recession by year end. In sum, not a great outlook for housing construction.
Canadian Consumer Price Index
Canadian headline inflation showed an ever-so-slight acceleration in January to 1.9% when compared to a year ago. Core inflation (excluding food and energy) remained at 2.2% as food prices fell, while energy prices rose. If not for the two-month GST holiday, which eliminated tax on certain essential goods, it’s likely that inflation would have accelerated by more. Since the holiday stretched into February we’ll see further impact next month. The monetary policy implications are minimal here. The Bank of Canada is likely to pause its easing until the tariff picture becomes clearer.
Not surprisingly, home prices and rents continue to push inflation higher, as does transportation. Looking at the bottom of the table it’s clear to see the impact of the GST holiday on food prices. Same for alcohol and cannabis. And yes, I’m refraining from making any comment about Canada tracking cannabis prices.
U.S. Housing Starts
Housing starts fell sharply in January, dropping 9.8% from December on a seasonally adjusted annual rate basis. Single family starts lost 8.4%, while multifamily declined 13.5%. Total permits for housing were flat from December in January, perhaps an indication that the wicked weather in January had some influence on the weak conversion from permit to start.
Single family starts had a solid 2024, but permitting has been slowing, which will lead to subdued growth this year. Mortgage rates have been trending higher and the market continues to skew to higher end homes, making affordability worse and forcing potential buyers elsewhere.
That should create an opening for multifamily. When I was at Dodge I made a call that multifamily starts would outperform this year. I’m sticking with that call, and we’ll see if the Census data supports that thesis. In my favor right now is that multifamily permitting seems to be turning a corner.
What could get in the way of any growth in housing? I know I’m sounding like a broken record, but it’s tariffs. In a separate release the National Association of Home Builders reported that homebuilder confidence plummeted in February. On top of tariff concerns would be the aforementioned affordability issues. There’s a lot of pent-up demand for housing if we can figure out how to get more affordable housing built quicker. There is some hope here that the new administration can roll back some red tape, but remember that zoning is a local issue…not federal.
What am I expecting? I expect single family starts to grow around 2% for the year (+6.8% in 2024) and multifamily starts to advance closer to 10% (-25% in 2024). Granted, these numbers could go down significantly pending tariffs on Canada/Mexico.
FOMC Meeting Mintues
The FOMC released the minutes of their January 28-29 policy meeting this week and observers tend to scour the language trying to parse out minute changes from previous meetings. This meeting was special in that it was the first time the FOMC met under the President’s new term.
Not surprisingly, a key quote was, “A majority of participants observed that the current high degree of uncertainty made it appropriate for the committee to take a careful approach in considering additional adjustments to the stance of monetary policy.” Translated, this says we’re in no rush and we want to see how policy shakes out.
For now I’d continue to assume two rate cuts in 2025, likely backloaded to September and December. What could change that view? Continued hot inflation reads (fewer cuts) or significant cracks appear in the labor market (perhaps one more cut in October).
Canadian Industrial Price Index
Industrial prices in Canada accelerated sharply in January, rising 1.6% from December and are now up 5.8% from a year ago. This was the largest one month jump since April 2024. This data is akin to the U.S. PPI data, but with a subtle difference. This data measures prices for manufactured goods sold by manufacturers at the gate; meaning, it measures the prices that the manufacturers themselves receive and does not factor in any wholesale or retail markups, or any sales taxes or tariffs. Excluding energy, core manufacturing prices were up 6% from last year.
Energy prices saw a sharp increase (+7% m/m), most like due to extreme cold over much of the U.S. and Canada over the last month. Construction related goods also shot higher during the month with the only exception being lumber and other wood products.
There’s not a lot of good news here for the Canadian construction space. Prices are running higher, which will continue to cool construction activity over the course of the year. Add in tariffs and the potential for slowing economic growth and you get more downward pressure on the industry.
What I’ll Be Watching This Week
For the U.S. my focus will be on new home sales, durable goods orders, and Friday’s inflation read. Very light for Canadian data - just GDP on Friday.
What I Watched on TV Last Week
What could be better than the tale of a washed up stuntman teaming up with a failed DJ to form a private detective company. It’s odd, quirky, but very funny. Great cameo from Keanu Reeves.
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