BOC State of Play: Weak Mfg Data Unlikely To Move BOC Outlook

By Yali N'Diaye

     OTTAWA (MNI) - While the Bank of Canada has stressed its dependence on

data, the weaker-than-expected manufacturing statistics released Thursday are

unlikely to shift the central bank's outlook.

     Nor are the recent housing data reflecting a cooling housing market in the

closely watched Toronto area, a likely welcome outcome for the BOC.

     Manufacturing sales fell 1.8% in June, while analysts in an MNI survey had

expected a 1.2% decrease, handing off a poor start to the third quarter, with

widespread declines across sectors and regions: 15 of 21 industries and eight

provinces reported lower sales in June.

     Earlier this week, housing statistics showed price gains slowed in the

Greater Toronto area, while existing home sales dropped.

     Yet the BOC is likely to see such data as the materialization of its

scenario, which anticipates a real GDP slowdown to an annualized pace of 2.0% in

the third quarter from 3.0% in the second quarter.

     While manufacturing weakness in June handed off a poor start to the third

quarter, actual housing data are finally showing the housing slowdown is

happening, notably in the greater Toronto area -- where the BOC wants to see it

happening.

     In its July Monetary Policy Report, the BOC had reiterated that higher

interest rates and and tighter macro prudential measures, including at the

provincial level in Ontario, should cool down the housing market.

     Existing home sales dropped for the fourth consecutive month in July, when

they were down 2.1% from June to 39,392, with indicators of sales, inventory and

prices showing signs of a housing market slowdown, notably in Ontario, where

sales fell 5.0% on the month.

     In particular, conditions were "more balanced" in the Greater Golden

Horseshoe (GGH) area -- which includes the Toronto region -- targeted by tighter

provincial housing rules since April 20, The Canadian Real Estate Association

reported Tuesday.

     On the construction front, while building permits rose 2.5% in June,

including a 12.9% gain in the Toronto region, the area showed signs of weakness

in the single-family sector, where construction intentions fell 24.7%.

     On the price front, monthly new house price growth slowed in June as

Southern Ontario "paused", Statistics Canada reported last Thursday, as the new

housing price index rose 0.2% from May. 

     On a 12-month basis, while prices increased 3.9%, edging up from 3.8% in

May, house price inflation slowed to 8.5% in Toronto from 9.0%.

     The more comprehensive Teranet-National Bank index showed that the

composite index rose 2.0% on the month, supported by a 2.1% gain in Toronto.

However, the report said, "a weakening is occurring in the unsmoothed index for

'dwellings other than condos' which is down 1.6%." It added, "this abrupt trend

reversal in the index of Toronto's least affordable type of dwelling is

consistent with the recent loosening reported in the home resale market."

     Yet prices continue to pick up in the Vancouver area after a slowdown in

the second half of last year following tighter provincial prudential measures

adopted over the summer of 2016, raising concerns over the ability of the

Ontario Fair Housing Plan to have a lasting impact. 

     Overall, however, data released this week, including Thursday's

manufacturing figures, are unlikely to shift the central bank's stance.

     Eyes are now on inflation data, with the CPI to be released at 0830ET

Friday.

--MNI Ottawa Bureau; +1 613 869-0916; email: yali.ndiaye@marketnews.com

[TOPICS: M$C$$$]