Canadian building permits data far exceeded expectations, jumping 12.3% in January after falling a revised 2.7% in December, Statistics Canada says.

The agency says the monthly value of slightly more than $4.3 billion was 8% above the prior record set in October. The increase is “astonishing,” says BMO Nesbitt Burns Inc. chief economist Sherry Cooper. Permits are now 14% ahead of year-ago levels.

Growth was solid in both major categories, with residential permits, lead by the Toronto housing market, surging 14.4%, also hitting a new record. Housing permits are a whopping 21% above year-ago levels, with gains spread across much of the country. Non-residential permits reversed some of December’s decline, gaining 8.7%. All of the gains were from a 52.6% gain in commercial permits as both industrial and institutional permits were weak.

“While there are plenty of concerns on the growth front, Canada’s construction sector just keeps churning out gains,” BMO says. “Even this week’s Bank of Canada rate hike is unlikely to have a material impact on the construction industry. However, the stellar growth rates of the past year are unlikely to be repeated. As well, the Bank did signal that more rate increases are to follow, and rising interest rates will eventually put a bit of a damper on the building industry.”

RBC Financial says the optimism on the part of builders is a reflection of an industry trying to catch up to the demand that swept over the housing market in 2002. Even with rising mortgage rates, only a moderate pullback in house construction is expected this year.

“More moderate increases in permits should follow in the months to come even as demand for housing begins to level out because of rising mortgage rates because of a slight supply-demand imbalance,” RBC says. “The number of completed and unabsorbed of new homes trended down through 2002 despite the fevered pace of construction.”

In other economic news, U.S. revised fourth-quarter 2002 productivity numbers showed the productivity of non-farm workers grew 0.8% at the end of last year — the slowest pace since the second quarter of 2001. “An eventual slowing of productivity does not come entirely as a surprise given unexpectedly large gains through 2001 and earlier in 2002, RBC says. “These numbers can be volatile and in no way cast doubt on numerous research studies indicating that trend productivity growth did, in fact, rise in the latter half of the 1990s and early parts of this decade.”

RBC also notes that hours worked increased for the first time in nearly two years. A rise in hours worked usually precedes an improvement in the labour market. “For now, however, the labour market continues to be sluggish.” Jobless claims rose 12,000 to 430,000 last week.