It's sort of a macroeconomic version of "two wrongs make a right."
Friday's Canadian employment numbers were way out of whack (to the upside) with expectations, busting out of the recent stagnant trend in such a massive way that they were hard to explain. Out of the 95,000 new jobs reported for the month, nearly half were in the construction sector; now where the heck did that come from?
Now we know. Monday's Canadian housing-starts number for May came in at an annualized rate of 200,200 – miles above the 179,000 that economists had anticipated. After a six-month slowdown (average starts of 183,000 over that period), the home builders are suddenly back – and they've brought jobs with them.
(A tip of the hat to the handful of economists who had noted the big construction-job number and last week's huge April building-permits increase, and raised their housing-starts estimates accordingly. Bank of Montreal senior economist Robert Kavcic, in noting that the result was in line with his firm's far-above consensus estimate, called the starts report "hardly a shocker" given the signals from jobs and permits.)
For the housing starts themselves, the May number needs to be taken with a grain or two of salt. The bulk of the surge came via multi-family units – the condo side of the business, which is notoriously chunky and volatile. It could slow down just as quickly as it picked up. Nevertheless, the first two months of the second quarter (April and May) suggest that the housing sector has been considerably more active than in the first quarter – and therefore could actually deliver a small positive contribution to GDP growth in the quarter, after several quarters of being a major drag on growth.
And while housing starts could slide back to the recent trend in coming months, keep in mind that the starts reflect only the beginning of the construction process; the jobs that came with May's sudden surge are likely to stick around for a while. Employment growth means more disposable income in the economy – a positive for household consumption's potential contribution to GDP growth.
And remember that Canadian building permits surged 10.5 per cent in April, the fourth consecutive rise. That indicates that building intentions for the coming months are on solid ground; home-construction activity may be temporarily more lofty than can reasonably be sustained, but there's still some firm support underneath to cushion the fall.
"[The housing data] reinforces our view that the economy will continue to grow more quickly in the second quarter than the [Bank of Canada] projected in its April Monetary Policy Report," said Deutsche Bank chief Canadian economist John Clinkard in a note to clients.