Slowdown in housing construction

More bad economic news -- a further slowdown in housing construction, falling factory shipments, and a shrinking trade surplus -- likely await Canadians in the coming week.

And that list doesn't include the unexpected, such as a possible further erosion of their savings in the wake of any worse-than-expected earnings reports that could deal stock markets a further blow.

While Canadians got off lightly with news this past week of an unexpected modest increase in employment last month, the job figures are considered a lagging indicator.

And the reprieve from an expected drop in employment widely viewed as being temporary.

However, the coming week's reports on housing starts, international merchandise trade, and factory shipments might point to where the job numbers will eventually go.

"The Canadian housing market boom is over, and our forecast is for leaner times ahead," said Millan Mulraine, analyst with TD Securities, which projects a drop to 200,000 in October from 219,000 September in the annual pace of housing starts.

"Canadian housing activity should continue to cool, though the moderation in activity is expected to be both measured and orderly."

And that's optimistic, with some analysts warning starts could slip below the 200,000 mark.

On the sales front, a report expected this coming Friday from the Canadian Real Estate Association is expected to show further weakness as well.

"Early returns from the largest cities were ugly," noted Douglas Porter, economist at BMO Capital Markets.

He noted that sales were down roughly 40 per cent from a year earlier in Vancouver, Toronto and Calgary.

BMO also expects that a Statistics Canada report on new home prices for September, being reported Monday, will show they were flat and only two per cent higher than a year earlier.

Meanwhile, Porter projects that the slump in commodity prices plus the weak U.S. economy will weigh on Canada's merchandise trade surplus.

"Commodity prices fell further and U.S. spending weakened meaningfully in September, a nasty combination for Canadian exporters," said Porter.

He projected that the surplus shrank by more than $1 billion in September to $4.7 billion.

That's still large enough to offset the chronic deficit in services trade and to keep Canada in the black in its overall dealings with the rest of the world, Porter noted.

"However, we look for merchandise trade to deteriorate much more deeply in the coming months, amid the sharper slowdown in U.S. spending and the further drop in resource prices," he added.

CIBC World Markets projected the weakening U.S. economy also acted as a further drag on Canadian factory shipments in September.

(prepared by Eric Beauchesne/Vancouver Province)