December 6, 2010 / 6:07 PM / 7 years ago

Canada Ivey, building data show subdued recovery

<p>New houses are seen as a construction worker works on building new homes in Calgary, Alberta, May 31, 2010. REUTERS/Todd Korol</p>

TORONTO/OTTAWA (Reuters) - Canadian purchasing activity ticked higher in November and the cooling housing market dragged down the value of October building permits as the economic recovery advanced but at a subdued pace.

The Ivey Purchasing Managers Index showed on Monday a rise to 57.5 in November from 56.7 in October. This was just above the market forecast of 56.

The PMI can be used to measure business optimism and forecast growth. A reading higher than 50 indicates activity increased from the preceding month and a lower reading reflects a slowing or decrease.

The value of building permits tumbled 6.5 percent in October, Statistics Canada said in a separate report, but the decline followed two months of gains and levels were still comparable to those prior to the recession.

“Given the deceleration in a wide range of economic indicators, one would expect that the Ivey PMI will remain in the 50-60 range that is consistent with a gradual recovery through the balance of the year and into 2011,” David Tulk, senior macro strategist at TD Securities, wrote in a note.

The employment and prices components of the index stayed above 50 for the month, while inventories and supplier deliveries were below 50.

“Subjectively, the decent rise in the employment index seems out of context with the net 15,000 jobs created in November, a number insufficient to keep up with the natural growth in the labor force,” said Stewart Hall, economist at HSBC Canada.

The reports come after recent data showed Canada’s economy gained fewer jobs than the market expected, while a separate report showed the economy disappointed in the third quarter with the weakest growth rate in a year.

Markets will next look to Tuesday’s Bank of Canada interest rate announcement and accompanying statement on the state of the recovery. All 44 forecasters polled by Reuters expect the Bank of Canada to keep interest rates on hold at 1 percent on December 7, but analysts differed on whether the next hike would come in early 2011 or in the second half.

“Not since the summer of 2008 have clients been subject to such divergent opinions ... surrounding the likely future path for the Bank of Canada’s overnight rate,” Scotia Capital economists Derek Holt and Gorica Djeric said in a note to clients.

The housing market was a driving force of the early phase of economic recovery but the central bank has long predicted that trend would not last.

The report on building permits showed residential permits sank 11.2 percent. Single-family units fell 9.4 percent and multifamily dwellings slid 13.6 percent from September, with the two biggest provinces of Ontario and Quebec posting the largest downturns.

Permits in the nonresidential sector edged up 0.1 percent as higher commercial and industrial construction offset a decline in institutional projects.

The overall value of permits was 1.1 percent lower in October than a year earlier but comparable to prior to the economic downturn.

Editing by Jeffrey Hodgson

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