Canada economy signals skid, but housing strong

OTTAWA (Reuters) - Corporate purchasing activity in Canada slowed in June, further evidence that the economy is entering a soft patch, but new home prices jumped at twice the rate expected in May, according to data released on Thursday.

The Ivey Purchasing Managers Index fell to 59.9 in June from 65.5 in May on a seasonally adjusted basis. The unadjusted index was 68.2, compared with 69.1 last month.

The report was consistent with weak PMI data globally and echoed manufacturing-sector purchasing data for Canada released by Royal Bank of Canada earlier this week.

“While not always the best reflection of the Canadian economy through the cycle, the June move in the Ivey PMI is consistent with the moderation in activity heading into the second half of the year,” said David Tulk, chief macro strategist at TD Securities.

Analysts had forecast a seasonally adjusted reading of 61.2 and an unadjusted reading of 65.

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 indicator was little changed while the prices-paid indicator slipped from May, suggesting inflation is under control.

The report had little impact on markets, with investors more focused on Canadian and U.S. employment data for June due on Friday.


In a separate report, Statistics Canada said new home prices climbed 0.4 percent in May following a 0.3 percent rise in April, with the Toronto-Oshawa region of Ontario and Montreal contributing most to the gain.

Analysts surveyed by Reuters had on average expected a gain of 0.2 percent in the month.

Canada’s housing market slumped briefly during the recession but has since heated up so much that central bank chief Mark Carney devoted an entire speech last month to the risks of overheating real estate markets and high household debt. However, Carney said he expects the market to moderate.

Benjamin Tal, senior economist at CIBC World Markets, said in a report on Thursday that Canada’s housing market may have some characteristics of a “bubble”, but he said the real story behind the data is less alarming.

He said a sudden collapse of the housing market is unlikely as most agree that interest rates will rise gradually and that the percentage of high-risk mortgage holders is minimal.

“Thus, short of a huge macro shock, there does not appear to be the risk of a large-scale forced selling that would typically be the trigger for a precipitous plunge in the national average house price,” Tal wrote.

“The national pace of any correction is likely to be gradual.”

In May, new home prices rose in 11 metropolitan regions, fell in three and were flat in seven, Statscan said.

On a nationwide basis, year-on-year prices were 1.9 percent higher in May, the third consecutive month of gains.

Reporting by Howaida Sorour and Louise Egan; Editing by Peter Galloway