March 5, 2009 / 9:53 PM / in 9 years

Latest Canada economic data weak but not dire

TORONTO (Reuters) - Purchasing activity in the Canadian economy contracted at a slower pace in February for the first time in five months, while the number of building permits taken out in January fell for a fourth straight month but not as much as expected, reports showed on Thursday.

Meanwhile, the Bank of Canada repeated its forecast for a sharp economic recovery in the second half of the year, but said more bad news would come before then.

Purchasing activity contracted in February at a slower pace than in the three previous months for the first time since September, when the financial crisis started to pick up steam, according to the Ivey Purchasing Managers Index.

The index, which reflects purchases in the manufacturing and services sectors, stood at 45.2 in February, well ahead of market expectations of 38, and up from 36.1 in January.

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.

The employment, prices, supplier deliveries and inventories subindexes were all below 50 last month.

“This does not represent a major turn in Canada’s economic fortunes,” Millan Mulraine, economics strategist at TD Securities, cautioned in a research note.

The value of Canadian building permits fell 4.6 percent in January from December, slightly ahead of the 5 percent decline expected by analysts polled by Reuters.

Permits in the institutional and commercial sectors climbed 12.2 percent in value, but that was not enough to offset the residential market, where multifamily dwellings, such as condos, and single-family homes both declined, Statistics Canada said.

Earlier this week, data showed the Canadian economy contracted at a sharp annualized rate of 3.4 percent in the fourth quarter of 2008 as the global financial crisis hit exports and curbed consumer and business spending.

The first-quarter 2009 figures that have trickled in so far have not shown much improvement from the fourth quarter, particularly the January jobs report, which showed a monthly loss of 129,000 jobs, a number big enough to wipe out all of last year’s job gains.

But Pierre Duguay, deputy governor of the Bank of Canada, clung to the bank’s prediction of a sharp recovery late this year, in an appearance before the House of Commons finance committee on Thursday.

The central bank sees a rebound later this year, leading to 3.8 percent growth in 2010 -- a forecast many private sector economists have said is too rosy.

Duguay told the committee that more bad economic news is on the way before then, making it crucial that the Conservative government’s C$40 billion ($31 billion) economic recovery plan be rolled out quickly.

“I agree there is a sense of urgency. Very clearly we will be hit by a string of bad news in the coming months,” he said.

“What is absolutely critical is to maintain business and public confidence and, clearly, access to credit is essential in that situation.”

The Conference Board of Canada forecast on Thursday that although the steep slowdown in the United States will hit the overall Canadian economy hard this year, four of the country’s 10 provinces will perform better than the norm.

The board said that the western provinces of Saskatchewan and Manitoba and the Atlantic provinces of New Brunswick and Prince Edward Island will manage to grow this year, though not without difficulty.

The board said the Canadian economy will contract 0.9 percent overall this year, before rebounding with 3.6 percent growth in 2010.

($1=$1.29 Canadian)

Editing by Peter Galloway

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