Although construction intentions cooled off in August, the industry is still doing very well. Statistics Canada says municipalities issued $4.1 billion worth of permits, down 13.4% from a revised level of $4.7 billion in July, which was a record high.

“Provided permits do not plunge again in next month’s release, the underlying trend in construction activity still appears quite healthy,” BMO Nesbitt Burns says.

Permits for housing declined 8.3% to $2.6 billion, halting three straight monthly gains. Intentions fell for both single- and multi-family dwellings.

At the same time, the value of non-residential building permits plunged 21.1% to just under $1.5 billion, again with declines in all three components — industrial, commercial and institutional. July’s value had been the highest in the last 14 years.

“Declines were seen across most provinces, too, meaning that Ontario’s power blackout that shut permit-issuing government offices for several days was only a minor factor,” RBC Financial says.

Despite the overall decline in August, the value of building permits, a leading indicator for construction activity, was 3.8% higher than the average monthly level in 2002, an exceptional year.

“Taken in context of the three previous strong monthly gains, we see the August decline as a temporary breather. While next year’s homebuilding market is expected to be slow, this year’s momentum in permit issuance so far puts 2003 on track for record status,” says RBC.

Nesbitt says that this pullback in housing permits points to a modest drop in housing starts in September. That data is due on Wednesday. “We are looking for a moderation to 225,000 units after a very robust 233,900 reading in August,” it notes.

“While considerably below expectations, the sharp decline in permits looks more like a one-off spike than the start of a weaker trend in this typically volatile series,” Nesbitt concludes.

“Without sloughing off a 13% decline, the underlying picture for construction still appears healthy. To put in perspective how lofty July’s level was, if permits just hold steady in September, they will be up at a 10% annual rate in Q3 from the prior quarter.”