June 6, 2011 / 4:47 PM / 6 years ago

Mixed Canadian data highlights hazy growth horizon

OTTAWA/TORONTO (Reuters) - The uncertainty of Canada’s economic growth outlook was highlighted on Monday as data showing a huge drop in the value of building permits in April contrasted with another release showing robust purchasing activity in May.

The value of building permits unexpectedly plunged 21.1 percent in April from March on weakness in Ontario, Canada’s most populous province, according to Statistics Canada.

Analysts in a Reuters poll had forecast a 6.0 percent decline from the near four-year high recorded in March. Statscan revised March’s increase to 16.8 percent from an initial 17.2 percent.

April’s month-on-month fall was the largest since the 23.7 percent drop recorded in January 2006.

Canada’s high-flying housing market is expected to cool this year following a tightening of mortgage rules and forecasts for rising interest rates.

In the residential sector, the value of permits fell 12.6 percent on weakness in the multifamily component in Ontario. In the nonresidential sector the value dropped 33.2 percent on lower construction intentions for institutional buildings in Ontario.

“Overall, a weak report ... In particular, the softness in residential permits continues to suggest homebuilding activity will ramp down this year, with roughly a 10 percent drop in housing starts for 2011 from the prior year,” said Emanuella Enenajor of CIBC World Markets.

The housing data, combined with fears about weakness in the U.S. economy, initially helped push down the Canadian dollar, though it later recovered.

At 10:35 a.m., the currency was at C$0.9783 to the U.S. dollar, or $1.0222, unchanged from Friday’s North American close.

The total value of permits fell in seven provinces with Ontario -- which accounted for more than a third of all permits issued in April -- posting by far the largest decline of 41.9 percent.

Compared with April 2010, the value of building permits was down 19.7 percent, with residential permits off 7.8 percent and nonresidential permits down 35.2 percent.

PURCHASING ACTIVITY RISES

Purchasing activity in Canada’s economy rose more than expected in May, according to the Ivey Purchasing Managers Index, though global headwinds were seen tempering future growth.

Data showed the seasonally adjusted index rose to 65.5 in May from 57.8 in April. The unadjusted index was 69.1 last month, up from 57.7 in April.

Analysts had forecast an unadjusted reading of 58.1 and a seasonally adjusted reading of 60.0.

A reading of 50 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.

“A look at the broader trend of the index, which has remained above the 50 threshold for expansion since February, suggests the manufacturing sector could continue to see expansion in the months ahead,” said Enenajor, who added that any growth would be modest.

Growth will be tempered by a soft U.S. economy and the disruption of the global supply chain in the auto industry due to the earthquake in Japan, said David Tulk, chief Canada macro strategist at TD Securities.

“Continued momentum in the domestic economy can provide an offset, but after playing a major role in supporting the overall, consumer spending and the housing market are due for a breather,” he said.

The index is a joint project of the Purchasing Management Association of Canada and the Richard Ivey School of Business.

($1=$0.97 Canadian)

Reporting by David Ljunggren in Ottawa and John McCrank in Toronto; editing by Rob Wilson

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