TORONTO – Home construction is forecast to tumble 24 per cent this year, economic indicators in general are steepening their plunge, and don’t expect employers to be cheerfully handing out pay raises.
Canadians swallowed their near-daily dose of distasteful economic news Thursday, headed by Canada Mortgage and Housing Corp.’s startling forecast for housing starts.
It projects 160,250 starts for 2009, down from a final number of 211,056 units in 2008, which was 7.6 per cent lower than 2007. CMHC also predicts sales of existing homes will fall 14.6 per cent this year to 370,500.
“The economic downturn will result in a decrease in demand for home ownership,” commented Bob Dugan, the federal housing agency’s chief economist.
Thursday’s release followed CMHC’s report last week that the number of housing construction starts in January plummeted 35.8 per cent from the unusually strong first month of 2008.
The deteriorating housing market was the key factor in the sharply accelerating decline in Statistics Canada’s composite index of leading indicators.
The statistics agency said this data basket, intended to foreshadow future activity, dropped 0.8 per cent last month, compared with a 0.5 per cent decline in December. It was the largest and most widespread slump in the leading index since it turned downward in September.
The housing portion of the indicator contracted by seven per cent, its largest monthly decline since June 1990, when the home market across Canada was crashing.
Housing starts – a key economic measure, as new homes define demand for everything from cinder blocks to chandeliers – are almost 50 per cent below last spring’s peak, with Western Canada showing the sharpest pullback.
Despite the housing slide, Statistics Canada noted that purchases of furniture and appliances rose last month, albeit slowly.
But two indicators of manufacturing demand sagged, even before large auto-industry plant shutdowns. New orders shrivelled by 3.6 per cent while the ratio of shipments to inventories continued to decline.
And employers are rapidly souring on salaries. The Conference Board of Canada said its survey found that projected pay raises for non-union workers in December and January eroded by a full percentage point from last summer, to 2.9 per cent.
Projections for unionized workers’ increases have dropped by half a percentage point to 2.7 per cent from 3.2 per cent.
“This downward trend will persist as the year goes on,” predicted Conference Board vice-president Prem Benimadhu.
On the bright side, “deteriorating financial and economic conditions” are forecast to hold inflation to 0.7 per cent, so workers can still aspire to keep ahead of the cost of living.
Any lingering hopes for an early economic revival look likely to be doomed to disappointment.
The tumble in the Statistics Canada leading indicator was worse than the 0.6 per cent expected by economists and “is consistent with projections for a worsening rate of GDP contraction,” commented Action Economics analyst Ryan Brecht.
He expects gross domestic product to shrink at a five per cent annualized rate during the first quarter, following a 3.5 per cent pace of decline in the final three months of 2008.
“Overall, the January index continued to track the general growth trends in the economy – household spending is slowing, the housing market is cooling quickly and manufacturing is continuing to erode,” Brecht noted.
“The financial markets continue to suffer.”
