May 6, 2009 / 5:46 PM / 8 years ago

Canadian building, purchasing data fuels optimism

3 Min Read

TORONTO (Reuters) - Canadian building permit and purchasing managers data came in much stronger than expectations on Wednesday, boosting the currency and fueling hopes the country's economic slide could be slowing.

Economists and political leaders called the data encouraging, but also warned investors shouldn't presume a much-hoped-for economic rebound is necessarily under way.

"This is a good sign but we have to keep working very, very hard to make sure that any signs of recovery take ... we're not out of the woods yet," Canadian Industry Minister Tony Clement told reporters.

Canadian Finance Minister Jim Flaherty also noted "there are some good signs" in the economy.

The cabinet ministers spoke after a report showed the value of building permits surged by 23.5 percent in March from February after five months of declines.

It was the largest month-on-month increase since the 28.7 percent gain recorded in March 2007.

The results blew past average expectations for a 2.5 percent increase in March from February, according to a Reuters survey.

Another sign the economy is improving was the release of the Ivey Purchasing Managers Index, which rose to 53.7 in April from 43.2 in March. [ID:nTAR001663]

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.

Average expectations were for a reading of 42.1, according to a Reuters survey.

Data Boosts Currency

The Canadian dollar, which strengthened following the building permits data, rose further after the Ivey data, hitting a session high of C$1.1713 to the U.S. dollar, or 85.38 U.S. cents.

"The market isn't looking for reasons to sell risk, it's looking for reasons to buy risk, so the building permits data certainly played to the audience there," said David Watt, senior currency strategist at RBC Capital Markets.

But analysts warned against reading too much into the reports, given the stiff headwinds still facing the Canadian economy.

"On balance, (the building permits data is) certainly impressive when looked at in isolation," Charmaine Buskas, senior economics strategist at TD Securities, wrote in a note to clients.

"However, given the recent downward trend in overall building activity and the fact that levels of activity are still soft overall, one cannot hang too much optimism on these numbers."

The building permits report showed intentions in the nonresidential sector leaped by 47.9 percent from February thanks to renewed strength in the powerful provinces of Ontario, Quebec and Alberta. The sector had plunged 30.5 percent in February over January.

In the residential sector, the value of permits in March advanced a modest 5.0 percent.

Overall, the value of building permits grew in half of the 10 provinces in March, with Quebec, Alberta and Ontario recording major increases. British Columbia was the only major province to experience a decline.

With additional reporting by David Ljunggren, Randall Palmer, Ka Yan Ng and Frank Pingue; Editing by Frank McGurty

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