Canada building permits plunge 17.3% in July, far exceeding forecasts

• Prior month +18.3% was revised up to +18.5%

Canada’s building permits for July came in well below expectations.

• Building permits month-over-month: -17.3%, much worse than the -6.4% consensus estimate. The previous month’s figure was +18.5%
• Total value of permits issued: $12.2 billion, a drop of $2.6 billion compared with June
• In constant-dollar terms, permit values fell 17.5% month-over-month and 2.2% year-over-year

Here is a breakdown of July permit values by sector versus June:

• Non-residential: down $1.9 billion to $5.0 billion
• Residential: down $701.2 million to $7.2 billion
• Institutional: down $1.5 billion to $1.7 billion
• Industrial: down $443.3 million to $795.5 million
• Commercial: up $41.0 million to $2.5 billion
• Multi-unit residential: down $531.8 million to $4.7 billion
• Single-family residential: down $169.4 million to $2.5 billion

The value of Canadian building permits dropped 17.3% in July to $12.2 billion, according to Statistics Canada. That was sharply weaker than the 6.4% decline that had been forecast and nearly erased the 18.5% gain posted in June.

The decline was widespread but led by the non-residential sector, where permit values slid $1.9 billion to $5.0 billion. The biggest driver there was institutional construction intentions, which tumbled $1.5 billion to $1.7 billion. Ontario accounted for most of that institutional decline with a $1.1 billion drop, followed by Quebec and British Columbia.

Industrial permits also fell, by $443.3 million to $795.5 million, with Saskatchewan, Ontario and Alberta leading the decrease. Commercial permits were the only non-residential category to post growth, edging up $41.0 million to $2.5 billion.

Residential construction intentions slipped $701.2 million to $7.2 billion. The multi-unit segment drove most of that decline, dropping $531.8 million to $4.7 billion, while single-family permits fell $169.4 million to $2.5 billion.

In July, municipalities authorized 19,200 multi-unit dwellings and 4,100 single-family homes. The combined total was down 10.1% compared with June. Over the 12 months through July, 297,100 multi-unit dwellings were authorized, down from 308,200 in the preceding 12-month period.

Taking a quick look at the numbers: This was a disappointing report. The headline decline was nearly three times larger than expected and was not confined to a single residential category. Institutional, industrial, multi-unit and single-family construction intentions all moved lower.

Part of the drop reflects a reversal of June’s unusually strong increase, especially in large institutional projects. Building-permit data can be volatile because one or two major projects can cause large monthly swings. Still, the 2.2% year-over-year decline in constant-dollar terms and the fall in authorized housing units point to softer underlying construction momentum as well.

The report may be slightly negative for the Canadian dollar and could reinforce a cautious Bank of Canada outlook. That said, inflation, employment and consumer-spending data typically have a larger impact on Bank of Canada policy expectations.

What this report captures: Building permits measure the value of residential and non-residential construction projects that Canadian municipalities have authorized. They are seen as a forward-looking indicator because a permit is usually needed before construction can start.

The data can offer an early signal about future housing construction, business investment and broader economic activity. However, monthly figures can be volatile, especially when large institutional, commercial or multi-unit projects are approved