Index contradicts persistent pessimism in OECD leading indicator for Canada
OTTAWA, February 26, 2013 – The Macdonald-Laurier composite leading index showed continuing signs of economic growth for Canada in January as components related to export demand in the United States showed the most improvement.
The index rose 0.2% in January, matching increases over the previous four months, except for a 0.3% gain in December. There were no significant revisions.
The outlook for continued growth for 2013 signalled by the index is in marked contrast with the leading indicator for Canada posted by the Organisation for Economic Co-operation and Development (OECD), said Philip Cross, Macdonald-Laurier Institute (MLI) Research Co-ordinator and former chief economic analyst at Statistics Canada.
The OECD’s indicator, which fell again in November, has posted only one monthly increase since February 2011, Mr. Cross said. Despite the OECD index’s persistent pessimism, the Canadian economy recorded slow but steady growth in both gross domestic product and employment over the last two years.
“The trends have been entirely in line with what MLI’s leading index has forecast,” Mr. Cross said.
Five of the index’s nine components expanded in January, down from eight the month before. Components related to export demand showed the most improvement, reflecting the upturn in the US markets for autos and housing.
New orders for durable goods manufactured in Canada rose 1.5%, their largest gain since last June.
The leading indicator for the United States rose 0.3%, also the largest advance since last spring, led by its manufacturing sector in January.
“This suggests that the sudden drop in manufacturing shipments in Canada in December, notably in the auto industry, was due to temporary factors that will be reversed early in the new year,” Mr. Cross said.
The slowdown in factory output in December led to a sharp drop in the unsmoothed average workweek, which was reflected in a drop in the smoothed version in January.
For the most part, the financial market components continued to advance. The Toronto stock market rose steadily, despite a small dip in commodity prices. The money supply expanded steadily.
The gap in interest rates between private and public borrowing widened slightly from December, when it hit its lowest level in over two years.
According to Mr. Cross, the housing index remained the largest drag on overall growth, falling another 2.1%. “All of the drop originated in a sharp decline in housing starts in January, as the slow retrenchment in building since last summer was compounded by the coldest weather in several winters,” he said.
Existing home sales were more encouraging, posting their first gain since last June when new restrictions on mortgage lending were introduced.
Claims for employment insurance fell 0.5%, their tenth decline in the last year. The improvement in the labour market was reflected in the unemployment rate, which eased to a four-year low of 7.0% in January.
The MLI monthly Leading Economic Indicator series provides unique and valuable insights into the future course of the Canadian economy – giving advance warning of recessions and upturns. The next release date is March 28, 2013.
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Tripti Saha
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tripti.saha@macdonaldlaurier.ca
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