Weekly Economic Watch- September 16 2013‏

– Building permits in dollar terms were up 20.7% in July after falling 10.6% the prior month. The jump exceeded by far consensus expectations, which were calling for an advance of no more than 3.5%. The strong results were attributable primarily to the nonresidential sector (+45.5%), which saw permits for commercial buildings soar 89.2%. The residential sector, for its part, posted a gain of 4.1%. Six of the ten provinces registered strong progressions in permits issuance, including Quebec (33.4%), Ontario (31.5%), Manitoba (36.9%) and Alberta (19.1%). In British Columbia, the value of building permits shrank by $72.8 million (-8.2%), more than reversing the previous month’s growth. At the national level, the increase in residential permits was split evenly between single units and multiples. In real terms, residential permits declined 0.7% as a 3% drop for multiples more than offset a 3.7% increase for singles.

Housing starts retreated 6.6% to a seasonally adjusted annual rate of 180.3K in August from 193K the month before. This was worse than expected by consensus, which had set its sights on 190K. The decrease in August was split between rural (-13.2%) and urban areas (-5.8%). The softness in urban residential construction occurred primarily in the multiples segment (-8.4%), although there were fewer single starts as well (-0.9%). On a regional basis, urban starts were down in BC (-19.4%), the Prairies (-23.9%), Atlantic Canada (-0.7%), and Quebec (-4.5%). These declines more than counterbalanced a 14.1% increase observed in Ontario. Multiple starts fell sharply in both BC and Alberta. In the latter province, it will be some time before economic activity returns to normal after the June/July floods. The awful housing start numbers for August are emblematic of the situation.

In Ontario, instead, starts remained strong, with activity up 25% in the multiples segment. However, this will exacerbate the problem of growing inventories in the condo market in the GTA. Consequently, while we can expect a rebound in Western Canada in the months ahead, this will likely be offset by a slowdown in Ontario. Based on two months of data, Canadian housing starts are tracking an annualized contraction of about 6% in Q3 (after expanding at a pace of 39% in Q2). Hence, residential construction will probably be a drag on GDP in Q3 after contributing positively the previous quarter. This, together with an expected moderation in consumption spending growth, should keep Canadian GDP growth below 2% for a second straight quarter in Q3.

To Read the Entire Report Please Click on the pdf File Below.