Canadian construction, purchasing activity heat up

Canada's construction sector appeared headed for a record-breaking, busy summer and purchasing activity at mid-year was speeding up more than expected, according to two reports released on Thursday.
The value of building permits issued in May soared 21.4 percent from April to a record C$6.8 billion (C$6.4 billion), largely due to plans for office buildings in Western Canada, Statistics Canada reported. That was more than triple the 5.6 percent gain forecast by analysts in a Reuters poll. Statscan revised the April decline in building permits to 7.3 percent from 8.4 percent.
The numbers are not likely to carry much weight in the Bank of Canada's interest rate decision next Tuesday. Most economists continue to predict the bank will raise its key rate by 25 basis points to 4.50 percent.
"The permits data will have no direct impact on the bank's monetary policy decision next week, but the positive surprise in this report supports the case for a rate hike," Royal Bank of Canada said in a note. "This is a noisy series but the underlying trends show that construction activity in Canada remained on firm footing in the second quarter," it said. A separate release showed that purchasing activity rose more than expected in June, and at a faster pace than in the previous month.
The index rose to 67.4 in June from 62.7 in May, according to the Ivey Purchasing Managers Index. A reading of 50.0 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 Canadian dollar was barely changed after the reports. Non-residential building permits soared 55.7 percent to a record-breaking C$3.1 billion on strength in the western cities of Calgary, Alberta, and Vancouver, British Columbia, while residential permits climbed 2.4 percent.
"The Calgary and Vancouver metropolitan areas were responsible for nearly 75 percent of the overall gain (in dollars) in May," Statscan said. Excluding those two cities, overall permits would have risen a still-respectable 7.0 percent, Statscan said.
On the housing side, the value of multi-family units fell 0.6 percent after big gains in April. Permits for single-family houses jumped 4.3 percent to a four-month high, but Statscan said the rise was not enough to counter the downturn seen since last September in single-family units. Rising mortgage rates and housing prices could dampen the market somewhat, or at least shift growth to the more affordable multi-family category of buildings, analysts said.
Although lightweight, the data on Thursday fed into market expectations of a central bank rate hike next week. But the June employment report due on Friday at 7 am (1100 GMT) may help shape forecasts for the bank's next move in September. The Ivey employment index fell to 58.5 in June from 61.7 in May, in line with forecasts for a modest 17,000 additional jobs in the month.