December 4, 2008 / 5:41 PM / in 9 years

Building permits sag, purchasing contracts

TORONTO (Reuters) - Purchasing activity in Canada contracted to its lowest level ever last month, while building permits fell sharply in October, two reports showed on Thursday, providing the first strong indications of a slower fourth-quarter economy.

The Ivey Purchasing Managers Index fell to 40.2 in November from 52.2 in October, and marked the first time activity had contracted since December 2007. Analysts surveyed by Reuters had expected a reading of 50.5.

It was also the lowest reading since the data series began in December 2000.

“History suggests that the November Ivey comes in around 58.0. The fact that it has broken free of its seasonal patterns suggest that, indeed, something untoward is working its way into the Canadian economy,” said Stewart Hall, an economist at HSBC Securities.

A reading of 50.0 indicates that activity remained flat from the preceding month, while a higher reading indicates an increase and a lower reading reflects a slowing or decrease.

The Ivey employment index showed a contraction for a third straight month, while the prices component fell sharply. Supplier deliveries and inventories are declined.

The Canadian dollar slipped to session lows versus the U.S. dollar following the Ivey report, but reclaimed the losses by midday.

The index is not seasonally adjusted and there is no distinction between manufacturing and services.

Although numbers for fourth-quarter GDP are not due for several months, even Finance Minister Jim Flaherty has recently said the global financial crisis may have pushed Canada’s economy into a technical recession -- defined by economists as two consecutive quarters of contraction.

The economy grew at a faster clip than expected in the third quarter, but the figures were largely from prior to the intensification of the global financial crisis.

In another sign of weakening activity in the fourth quarter, the value of Canadian building permits fell by a steeper than expected 15.7 percent in October.

The decline came off September’s robust 12.5 percent increase, though that was marked down from an early estimate of 13.4 percent, Statistics Canada said.

A Reuters survey of analysts had predicted only a 6.8 percent decline in October.

“It is clear that the pace of both housing activity and commercial building activity is quickly throttling back as the economy cools. Though the magnitude of the declines in October are unlikely to continue, the trend is certainly well entrenched,” said Charmaine Buskas, senior economics strategist at TD Securities.

“This suggests that building activity will not contribute to growth as the correction continues to unfold.”

($1=$1.26 Canadian)

Reporting by Ka Yan Ng; editing by Rob Wilson

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