• US construction starts contracted by 1.2% year-on-year in 2017 Q1, with a divergence in performance among the sub-segments. Civil engineering projects grew by 17.4% from a year earlier and residential building increased by 4.9%. Non-residential construction, by contrast, declined by 13.4% year-on-year with double-digit declines posted in several sectors.

• US GDP growth slowed to 0.7% annualized in 2017 Q1, despite some robust readings in the ‘soft’ confidence and financial market data. We forecast a rebound in growth in Q2, driven by moderate growth from the consumer and a pick-up in business investment and exports. Fiscal stimulus should support growth in 2018, but we are doubtful that it will have a lasting impact.

• US construction spending is seen slowing in 2017 after robust growth in 2016. A likely government stimulus package will drive solid growth in construction of engineering projects, but any package is likely to be insufficient to close the infrastructure deficit. Healthy prospects for households, rising home prices and significant scope for catch-up growth should underpin residential construction over the forecast period. Nonresidential building, by contrast, is forecast to stagnate in 2017 as political uncertainty weighs on sectors such as healthcare and structural factors impact retail construction.

• Canadian construction starts fell by 9.2% year-on-year in Q1, with declines posted in both residential and non-residential building, but a small annual rise was seen in the construction of new civil engineering projects.

• After a dismal 2016, construction starts in Canada are expected to return to growth in 2017. Much of the improvement is due to a more robust outlook for the oil and gas sector – the fortunes of the miscellaneous civil sector (where oil and gas projects are classified) should turn around by the end of the year. Down the supply-chain, this should stimulate a recovery in demand for oil-related services in regions such as Alberta, with subsequent increases in demand for new office space. Residential construction is forecast to rise at a more modest pace than in the US; the outlook for the consumer is less robust, there is less scope for catch-up growth and high levels of debt leave Canadian households vulnerable to a rise in interest rates or a slowdown in economic growth.

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