Canada industry, housing data spotlight downturn

Wed Jun 11, 2008 12:38pm EDT
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By Louise Egan

OTTAWA (Reuters) - Canadian industry has scaled back production and prices for new homes are no longer rising quickly, figures showed on Wednesday, highlighting an economic downturn a day after the Bank of Canada stunned markets by not cutting interest rates.

Statistics Canada said that industries ran at 79.8 percent of capacity in the first quarter, the slowest rate in 15 years and worse than expected. The auto and wood-products industries, both reliant on the U.S. market, were among the biggest contributors to the decline.

"The reduction in the rate of capacity utilization is further evidence of the retrenchment in economic activity in Canada, as producers reduce their level of production in line with sagging demand for their products," said Millan Mulraine, economics strategist at TD Securities.

The report on new home prices, which feeds into the consumer price index, showed prices unchanged in April for the first time since December 2006. The annual price rise was 5.2 percent, the weakest pace since September 2005.

The weaker-than-expected figures did not have much impact on the Canadian dollar, which bounced back and forth in a tight range versus its U.S. counterpart. Bond prices all moved higher.

The two sets of data suggested the slowing economy, which contracted 0.3 percent in the first quarter, is also showing an inflation rate that is still relatively benign.

That contradicts the Bank of Canada statement on Tuesday that accompanied its decision to hold its key overnight rate unchanged at 3 percent. The statement highlighted the threat of inflation and showed less concern about the sagging economy.

"Disinflation evidence shines through in two Canadian releases today that shed doubt on inflation fears in Canada," said Derek Holt, economist at Scotia Capital.   Continued...