An astounding rebound in the resale housing market combined with good news out of the manufacturing sector Friday to suggest that Canada is slowly but surely digging itself out of recession.
The Canadian Real Estate Association reported that 50,270 homes traded hands on the Multiple Listing Service in July. This is up 18.2 per cent from a year ago and set a record for the month of July.
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Meanwhile, manufacturing sales rose 1.9 per cent to $39.7 billion in June, partially reversing the 4.9 per cent decline seen in May, according to Statistics Canada.
Although the economy has a long way to go before it returns to levels of growth seen before the recession began, there are many signs that the bottom has been reached, said CIBC chief economist Avery Shenfeld.
“I believe that when history is written, we’ll see that the second quarter was the last quarter of recession, and the third quarter the quarter that marked the beginning of the climb out of the hole,” Shenfeld said in an interview.
Although Shenfeld cautioned against placing too much weight on monthly numbers, he said both manufacturing and housing are important signposts for the direction of the economy as a whole.
“Both are important in terms of defining the end of recessions and beginnings of recovery,” he said.
However, the Canadian economy is ultimately reliant to a large extent on that of the U.S., where the recovery is expected to be a gradual one.
On Friday, the University of Michigan’s consumer sentiment index fell an unexpected 2.8 points to 63.2, its lowest level since March.
“If our largest trading partner only grows at a very modest pace over the next year and a half, that’s going to cap how much enthusiasm we should have about the Canadian economy’s prospects,” Shenfeld said.
“Canada’s recession was largely an export shock, and the pace we get out of it will largely be determined outside our borders.”
Within Canada, home sales have been rebounding steadily since January, posting six consecutive monthly increases. Seasonally adjusted activity is now 61.2 per cent higher than it was at the beginning of 2009 and is only 1.4 per cent below its all-time high in May 2007, according to CREA.
“Home sales through the MLS systems in July provide clear evidence that sentiment about making major purchases continues to improve,” stated CREA chief economist Gregory Klump.
“Activity may level out over the rest of the year as home prices and mortgage lending interest rates creep higher.”
Toronto posted a year-over-year gain of 28 per cent, while Montreal added 19 per cent, Calgary gained 22 per cent, Edmonton climbed 28 per cent and Vancouver grew a breathtaking 90 per cent.
“Record-low borrowing costs and the mounting sense that the worst of the economic storm has passed are the key ingredients in the remarkable turnaround,” wrote BMO deputy chief economist Doug Porter.
“We keep saying that further gains will be harder to come by, but the market keeps churning out those gains.”
The average price of a resold house rose 7.6 per cent to $326,832, while the number of MLS listings was 13 per cent below year-ago levels.
The manufacturing sales data from Statistics Canada was less unabashedly positive than that out of the housing sector, but it still represents an important reversal from a weak May.
The agency attributed the increase to strong sales in the aerospace industry and a rise in the price of petroleum and coal products, partially offset by lower auto sales, which slipped 0.6 per cent to 119,961 units in June.
However, Statistics Canada said preliminary data suggest a five per cent increase in auto sales for July.
New manufacturing orders jumped 18.4 per cent in June, the largest gain on record.
BMO Capital Markets economist Robert Kavcic said the improvement in the manufacturing industry “largely reflects a rebound from extremely depressed levels,” but it does point to better days ahead.