Breadth of growth widening. Gradual but steady improvement in index.
OTTAWA, January 29, 2013 – The Macdonald-Laurier composite leading index showed encouraging signs of growth in the Canadian economy in December.
The index rose 0.2% in December to match upward-revised gains in October and November. But just as importantly, the breadth of growth in the index increased significantly, said Philip Cross, Macdonald-Laurier Institute (MLI) Research Co-ordinator and former chief economic analyst at Statistics Canada.
“Only one component contracted in December, compared with four declines the month before, while six increased and two were unchanged,” he said.
“The gradual improvement in the leading index – from no growth in July to diffuse gains by year-end – points to a pick-up in economic growth as 2013 unfolds.”
In the index the three financial components remained the most consistent sources of growth, rising in unison for the second month in a row.
Prices on the Toronto stock market rose for the third month in a row to reverse most of their declines over the summer. The TSX rally has been led by information technology and metals, both of which are up about 20% from their lows in July.
The interest rate spread between the private and public sectors narrowed for the second straight month, reaching the smallest gap in more than a year. This is a sign of reduced concern about the risk of lending, Mr. Cross said.
Finally, the money supply capped a year of steady expansion with a 0.2% increase.
Elsewhere in the MLI index, commodity prices in December held on to their 1% gain in November.
While energy prices continued to soften, prices for forestry products hit their highest level since June 2004. Lumber led the gain thanks to further evidence that the US housing market was on the mend after years of decline.
Housing starts in the US in December were close to an annual rate of 1 million units, almost double their low set in December 2009. The recovery in the US housing demand was firmly rooted in a near doubling of household formation over the past year.
In Canada, the housing index was the only component that fell, although the rate of decline eased from 3.1% in November to 1.9% in December. Housing has retreated in the MLI Index for six straight months.
The manufacturing sector rebounded from declines the month before. New orders recovered by 0.8%, buoyed by the strengthening US auto market. US auto sales jumped 19% in December, as ongoing replacement demand for a fleet that averages 11 years in age was supplemented by vehicles damaged by Hurricane Sandy. The average workweek at factories was unchanged.
The outlook for the overall US economy continued to improve with its leading indicator up 0.2% in December after previous months were revised up.
The increase was led by the components related to the American labour and financial markets. These were partly offset by lower consumer confidence and manufacturing orders, components most affected by uncertainty surrounding negotiations about the impending US fiscal cliff before a last-minute deal was reached.
Labour market conditions in Canada continued to improve, with claims for employment insurance falling 0.5%. This improvement was reflected in the unemployment rate, which fell to a four-year low of 7.1% in December as a result of higher employment.
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 February 26, 2013.
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