The Leading Economic Indicator, MLI Senior Fellow Philip Cross’ vital tool for forecasting the business cycle, is back!
OTTAWA, May 2, 2016 – The Macdonald-Laurier Institute’s Leading Economic Indicator (LEI) is back – and it’s painting a portrait of a sluggish Canadian economy in the coming months.
The indicator, which is designed to monitor the underlying cyclical health of the Canadian economy, was unchanged at 0.0 per cent in March.
Established in October 2012 by Philip Cross, former chief economic analyst at Statistics Canada, the LEI extends Statcan’s now discontinued but extremely important work in this area. In a video accompanying the release of the index, Cross explains, “now that I am no longer no longer in government, I can take a little more risk”, noting that Statcan’s indicator was very cautious which “doesn’t lead to a very interesting leading index.” Cross has extended the lead time of the indicator to six months, while maintaining the accuracy of Statcan’s index.
As for what the near future holds: “Falling commodity prices remained the main source of weakness in Canada’s economy, while the transition to growth led by the manufacturing and household sectors remains elusive in an environment of subdued global growth”, writes Cross, an MLI Senior Fellow.
To learn more about the leading economic indicator, click here.
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 month in advance, with an error rate of less than 5 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.
Using figures from March, Cross found that four of the 10 components increased in March, one was unchanged while five declined. Falling commodity prices remained the main source of weakness in Canada’s economy, while the manufacturing and household sectors have yet to turn around in a subdued global economy. Overall, the lacklustre performance of the MLI index suggests that the January increase in GDP was driven by transitory factors.
The index is available on Bloomberg and is intended for journalists and analysts who follow the macro performance of the Canadian economy. Quarterly economic analyses by Cross, based on the results of the indicator, will appear on the MLI website.
Philip Cross is a Senior Fellow with the Macdonald-Laurier Institute. He previously served as the Chief Economic Analyst for Statistics Canada, part of a 36-year career with the agency.
The Macdonald-Laurier Institute is the only non-partisan, independent national public policy think tank in Ottawa focusing on the full range of issues that fall under the jurisdiction of the federal government.
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