TORONTO (Reuters) - More evidence emerged on Tuesday that the Canadian economy is pulling out of recession but economists were guarded in their enthusiasm, saying that September jobs figures due out on Friday will offer a better test.
Data showed that business purchasing activity in the economy rose in September and that the value of building permits increased in August.
That helped the Canadian dollar rally to its highest level against the U.S. currency in a year, but most of the currency's thrust came from soaring commodity and equity prices and a decision by Australia's central bank to raise interest rates, which was interpreted as a sign of confidence in economic recovery.
Building permits in August recovered most of the ground lost in July, when the city of Toronto was unable to issue permits because of a strike by its workers.
Statistics Canada said August permits were up 7.2 percent from July, but up by only 0.8 percent if Toronto were excluded. July's decline was revised to 10.0 percent from 11.4 percent.
"The key here is that if not for the end to the latest strike by Toronto's municipal workers that had shut down permit approvals in July, permits would have only risen by 0.8 percent in August," said Derek Holt, economist at Scotia Capital. "That's a far cry from the headline pop that was largely expected, after controlling for prior month revisions."
The value of permits in the residential sector rose by 11.2 percent, including 15.1 percent in single-family dwellings and 2.6 percent in multifamily dwellings. Nonresidential permits rose by 2.2 percent. The figures are seasonally adjusted.
Purchasing by Canadian businesses expanded for a fourth straight month in September, and at a faster pace than had been expected, according to the Ivey Purchasing Managers Index.
Economists were encouraged by the purchasing index, which rose to 61.7 in September from 55.7 in August, well above expectations for a reading of 56, according to a Reuters survey.
All of the subcomponents of Ivey -- employment, prices, supplier deliveries and inventories -- also rose.
Analysts zeroed in on the employment subindex, which surged to 55.9 from 47.5, saying the improvement could bode well for this Friday's jobs report. It was the first time the employment index has risen above 50 since August of last year.
"If anything, this is an indication of some positive momentum in the Canadian labor market, and does present some upside risks to our above-consensus call for a 10,000 jobs' gain in Canada in September," said Millan Mulraine, economics strategist at TD Securities.
The September labor force survey remains the major test for markets this week as the market is eager to see if the economy added jobs for a second straight month.
Following an unexpected gain of 27,100 jobs in August, the September jobs report is expected to show a slim increase of 5,000 jobs and an uptick in the unemployment rate to 8.8 percent from an 11-1/2 year high of 8.7 percent in August.
Canadian Prime Minister Stephen Harper said on Tuesday that the global economy is experiencing a mild, fragile recovery that won't kick in in earnest until unemployment starts to turn around. "We're certainly not out of the woods," he told Toronto's Newstalk 1010 radio.
Recent figures supporting sentiment that the economy is recovering include rising industrial product prices for August and firmer consumer confidence in September. On the flip side, gross domestic product came in flat in July.
Reporting by Randall Palmer and David Ljunggren in Ottawa and Ka Yan Ng in Toronto; editing by Peter Galloway