Housing and a strong US economy have helped to maintain Canadian economic growth in recent months, writes Munk Senior Fellow Philip Cross in MLI’s latest Leading Economic Indicator.
OTTAWA, ON (Feb. 1, 2018): Canada’s economic growth increased in November. The Macdonald-Laurier Institute’s Leading Economic Indicator, a tool designed to predict changes in the Canadian business cycle, rose by 0.5 percent in December, matching its gain the month before.
The upturn of the index signals that the second half slowdown in Canada’s economic growth may be temporary. However, the largest turnaround was in the housing component, which rose 3.1 percent in November and 1.9 percent in December after subsiding for five straight months over the summer.
“Existing home sales led these gains,” says Munk Senior Fellow Philip Cross, the author of the LEI, “as borrowers rushed to close sales before new federal regulations tighten lending standards on January 1.”
The leading index is designed to signal an upcoming turn in the business cycle, either from growth to recession or from recession to recovery, six months in advance, with an error rate of less than five percent. It does so by monitoring what businesses and households have actually committed to in terms of future spending and production in the most cyclically-sensitive sectors of the economy. It also incorporates global influences such as the direction of the US economy and the broad thrust of monetary policy.
“A more sustainable source of growth appears to be the US economy,” added Cross. The leading index for the US rose by 0.7 percent, bolstered by industrial demand which has replaced consumer sentiment as the driving force of growth in recent months.
Rising international demand also boosted commodity prices and resource stocks in Canada’s stock market. So far, Canada’s manufacturing sector has benefited little from stronger US demand, with new orders down for the fourth time in six months.
To learn more about the leading economic indicator, click here.
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