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Despite the big drop, building permit data are not conclusive

Construction workers strike in Montreal on June 17, 2013.

PAUL CHIASSON/THE CANADIAN PRESS

The data aftershocks from the Alberta floods and Quebec construction strike just rattled through another indicator Monday morning – the August building permits report.

The report, over all, was a big disappointment. Permits plunged 21.2 per cent in August – giving back all of July's 21.4-per-cent gain. Non-residential permits nosedived 38 per cent; residential permits fell 5.4 per cent.

These were hardly cheery numbers, especially for a country that has become increasingly nervous about its economic momentum (or lack thereof) and the staying power of its housing sector. Still, we might not want to get too distraught about this particular disappointment.

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First, there are a couple of very good reasons for these numbers to have been swingy in July and August. One was Quebec's construction strike. The other was Alberta's severe floods.

Both events had passed by early July, and the rebound of pent-up activity and (in Alberta's case) the need for substantial rebuilding were reflected in July's rush for new building permits, as non-residential permits soared 47 per cent in the month. It's understandable that August wasn't going to keep pace with July's bounce-back. Indeed, two of the three biggest provincial declines in permit values in the month came from Quebec and Alberta.

We knew that both of these events were going to cloud the economic data for some time – and the haze would almost certainly be thickest around the construction industry. It appears we'll have to wait a while longer for the fog to lift.

Harder to explain, however, was the 31.5-per-cent plunge in Ontario's permits, which by itself accounted for more than half of the entire national drop in July. Or the fact that eight of 10 provinces showed a decline in the month – a list that obviously includes a lot of provinces that had no strikes, floods or other mitigating factors to explain the decline in building intentions.

But keep in mind that this is one volatile indicator. As the accompanying graph shows, it's prone to some pretty wild swings around its trend line. A big drop on the heels of a big gain is, frankly, pretty much par for the course. It will take a lot more than one off-putting month to make a convincing argument that the Canada's construction industry is going into hibernation.

(See the graphic on mobile devices here.)

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About the Author
Economics Reporter

David Parkinson has been covering business and financial markets since 1990, and has been with The Globe and Mail since 2000. A Calgary native, he received a Southam Fellowship from the University of Toronto in 1999-2000, studying international political economics. More

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