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Canadian building permits fell for the fourth straight month in February as the U.S. economic slowdown led businesses to curb their plans for non-residential construction in Ontario.
Across the country, permit values dropped by 1 per cent to $5.8-billion in February, Statistics Canada said Monday, compared with economists' expectations for a 1.3 per cent gain. Statscan also revised its January permits pullback to a 3.5 per cent drop from the initially reported 2.9 per cent decline.
Residential building permits — a category that includes both multi- and single-family units — jumped by 18.2 per cent to $3.9-billion. But that rise was not enough to offset a dive in the value of non-residential intentions, which plummeted 25.6 per cent to $1.9-billion — their lowest level in the last year.
The government agency attributed February's unexpected weakness to plunging non-residential construction plans in Ontario. “If the province were excluded, the total value of building permits nationally would have increased 9.8 per cent, instead of declining 1 per cent,” Statscan said.
The Bay Adelaide Centre is seen here under construction in downtown Toronto.
Canadian building permits fell for a fourth straight month in February, as the U.S. slowdown triggered a sharp pullback in non-residential construction intentions in Ontario. (Fernando Morales/The Globe and Mail)
Permits in Ontario fell 16 per cent to $2-billion, with a 44.9 per cent plunge in the non-residential sector inflicting the damage.
“This is pretty ugly for Ontario,” Don Drummond, chief economist at Toronto-Dominion Bank, said in an interview. He cautioned, however, that building permits are a volatile economic indicator and that Ontario's non-residential intentions were up sharply in January. “Before we push the panic button too hard we want to see if this is a one-month blip or sustained downward trend.”
Nationally, February's weakness in the non-residential sector was driven by double-digit decreases in all three components:
• Institutional permits fell 35.7 per cent on lowered expectations for schools, medical buildings, administrative buildings and nursing homes.
• The value of commercial permits dropped 16.2 per cent on declines in projects for office buildings and hotels.
• Industrial permits plunged 39.4 per cent amid lowered building intensions for manufacturing buildings in Ontario and utility buildings in Alberta.
“The manufacturing is easy enough to understand, but you have the fall-off in shopping centres...it does suggest that this could be the start of a trend,” Mr. Drummond said.
BMO Nesbitt Burns deputy chief economist Douglas Porter said that among the three non-residential categories, industrial permits appear to be fading the most. “The strong Canadian dollar and slowing U.S. economy is prompting manufacturers to reel in their investment outlays.”
Over all, national building permits have been pulling back in 2008. The slowing U.S. economy, which has been hit hard by the collapse of the subprime mortgage market, is also having an impact on Canadian expansion, particularly in manufacturing-dependent Ontario.
Mr. Porter also warned against reading too much into the volatile report, noting that permits are still trending above year-earlier levels. “I believe some slowing in the year ahead is inevitable, but so far, activity has held up well,” he said.
He expects the Bank of Canada will be keeping a close eye on the downturn in the U.S., which will have significant repercussions for growth in Ontario this year. “We are saying that the U.S. is in a mild recession and so by extension, I would say that Ontario is likely going through a mild recession.”
Paul Ferley, assistant chief economist at Royal Bank of Canada, described the February permit drop as “discouraging” and said it, along with other reports, have increased the risk that the “recent credit tightening, along with increased discussion of a possible U.S. recession, is weighing on business spending.”
Mr. Ferley expects Canada's central bank will keep cutting interest rates, sending the benchmark rate to 2.75 per cent by midyear from its current level of 3.5 per cent.
The February rise in the value of residential permits was driven by multifamily dwellings, which surged 31 per cent, and to a lesser degree single-family dwellings, which rose 11.6 per cent. Statscan noted, however, that the number of residential units approved has been trending lower since the end of the summer of 2007.
