July 7, 2009 / 4:07 PM / 8 years ago

Canada purchasing, building plans soar unexpectedly

3 Min Read

<p>Buildings are shrouded in fog in the financial district of Toronto April 3, 2009.Jumana El Heloueh</p>

OTTAWA (Reuters) - Canadian purchasing activity and building intentions leapt back to life in June and May, respectively, soaring past expectations and suggesting the pace of economic contraction is slowing.

However, bankruptcies by companies and individuals jumped 31 percent in May from a year earlier, though they were down nearly 10 percent from the previous month, according to official statistics.

The Ivey Purchasing Managers Index rose to 58.2 in June from 48.4 in May, while markets had expected a rise to just 50.3. 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.

June and April have been the only months since last November in which the index was above the 50 mark.

The strongest components of the index in June were supplier deliveries, at 51.9 from 42.5 in May and prices at 60.4 from 54.4. Employment was unchanged at 50 and inventories were lower at 43 from 44.7.

Millan Mulraine, economics strategist at TD Securities emphasized that on a seasonally adjusted basis, the Ivey index remained below the 50 threshold.

"It suggests the Canadian economy is continuing to contract, even though at a diminishing pace," he said.

A separate report by Statistics Canada pointed to a possible increase in housing starts in coming months. The value of permits obtained by builders jumped 14.8 percent in May from April on a comeback in both the housing and nonresidential sectors. Analysts had forecast an increase of 0.7 percent.

The permits, an early indicator of construction activity, surged to over C$5 billion ($4.3 billion) for the first time since last October. Permits had fallen 4.5 percent in April.

But economists said it was too early to declare a recovery in the housing market.

"Barring this gain, the housing market is still quite weak, with consumer fundamentals pointing to further deterioration ahead and a long road to recovery," Scotia Capital economists Derek Holt and Karen Cordes said in a note to clients.

"Low mortgage rates should help support some growth as long as yields remain low," they added.

Charmaine Buskas of TD Securities predicted the pace of building activity and said the sharp rise in permits was driven by two sub-categories -- multiple-family dwellings and institutional buildings.

Residential permits rose for the third straight month, up 14.4 percent due largely to plans for multifamily units in the central province of Ontario.

Municipalities issued 40.6 percent more permits for multiple-family dwellings in May than in April and 1.4 percent more permits for single-family dwellings.

Nonresidential permits jumped 15.3 percent on intentions for medical buildings in Alberta and educational facilities in Ontario, Statscan said.

($1=$1.16 Canadian)

Additional reporting by Toronto treasury team; editing by Rob Wilson

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