10/06/2011 08:38 EDT | Updated 12/06/2011 05:12 EST

Canada Real Estate: Building Permits Drop For 2nd Straight Month


OTTAWA - The value of building permits issued in August slipped for the second straight month, weighed down by a sluggish commercial construction sector amid growing anxiety about the weak economic recovery.

The 10.4 per cent drop from July brought the total value to $5.9 billion for the month as permits for the construction of offices, factories, schools and hospitals also fell for the second consecutive month.

The so-called non-residential sector slipped 16.6 per cent to $2.3 billion, raising concerns about weaker business confidence, while permits for the larger residential sector, which includes condos and apartments, slipped six per cent to $3.6 billion after growing for three straight months.

"Building permits tanked well before recession risk talk began to intensify in Canada, demonstrating that the impact of a marked decline in global risk appetite due to Europe's debt troubles and U.S. political theatrics took its heavy toll on business confidence over the late summer period," Scotia Capital economists Derek Holt and Karen Cordes Woods said in a note to clients.

CIBC called the statistics "disappointing" in light of "expectations for a mild gain."

"On the residential side, both single family and multi-family permits fell, while commercial and institutional sectors were weakest on the non-residential side," CIBC economist Emanuella Enenajor wrote in a note.

"That marks the second monthly decline in permits, and taken together with August's easing in housing starts, hints that home-building in Canada is starting to shift into lower gear."

Housing starts in August slipped to a seasonally adjusted annual rate of 184,700 units, down from 204,500 in July, as builders started work on fewer condominiums and apartments.

Confidence in the Canadian economy has been shaky in recent months as the European sovereign debt crisis and a sluggish U.S. economic recovery have stunted growth at home.

Most economists predict that Friday's key employment data from Statistics Canada will confirm the trend toward a weaker, but still growing economy. The consensus is for a gain of about 20,000 jobs, reversing August's decline of 5,000 jobs when the jobless rate edged up to 7.3 per cent.

On Thursday, the Conference Board of Canada reported its help wanted index, which measures online job postings, fell in August to 121.2.

Despite the drop, the think-tank noted that it remained 21 points higher than where it was at the end of last year and suggested a moderate gain in jobs in the short term was still possible.

"Modest job losses last month, coupled with a growing labour force and a decline in the number of job postings, explains why the number of unemployed individuals for every job posted online rose, the Conference Board said.

"Nonetheless, the labour market has been following a tightening trend since the end of 2009. And despite August’s loosening, the market remains near its prerecession tightness levels."

Similarly, while there was a month-to-month decline in building permits issued, there was still growth compared with $5.7 billion in August 2010 and $5.6 billion in August 2009, when the recovery began.

The largest drop in building permits this past August were in Ontario, but Quebec, Saskatchewan and Nova Scotia also slipped, with the declines more than offsetting increases in the six other provinces.

Permits for condos and apartments were down in Ontario as well as plans for institutional buildings such as schools or hospitals.

The largest gains were in Alberta, British Columbia and New Brunswick.

Statistics Canada said permits in Alberta were driven by industrial and institutional plans, while condos and apartments led the increases in British Columbia and New Brunswick.