Recent gains are pointing to a pickup in economic growth in the second half of the year, notably in export demand. U.S. sees its largest advance in over two years.

OTTAWA, September 30, 2013 — The Macdonald-Laurier composite leading index increased by 0.4% in August, a slight improvement on its 0.3% gain in July.

The index has strengthened steadily from gains of only 0.1% at the beginning of the year.  Six of the nine components expanded, one was unchanged and two decreased.

"These gains point to a pickup in growth in the second half of the year, notably in export demand," said Philip Cross, a senior fellow with the Macdonald-Laurier Institute (MLI), who produces the index.

The MLI Leading Economic Indicator, established in October 2012 by Cross, former chief economic analyst at Statistics Canada, extends StatsCan's now discontinued but extremely important work in this area, increasing the lead times while maintaining a low error rate. It provides unique and valuable insights into the future course of the Canadian economy.

Leading indicators are vital for governments and businesses whose fortunes are tied to the twists and turns of the overall economy. Furthermore, they are useful for individuals confronted with questions about what to do in everyday life. Is the recent change in the stock market a temporary fluctuation or does it signal a cyclical turn? Is it a good time to leave my job, to look for another, or go back to school?

In the most recent index, the outlook for exports continued to brighten for the second half of the year. Export volumes were little changed in the second quarter from their level a year earlier.

The leading index for the United States rose 0.5%, its largest advance in over two years. The pickup in growth was led by manufacturing and improved labour market conditions.

"The improvement spilled over to factories in Canada, where both leading indicators related to manufacturing increased in unison for the first time this year," Mr. Cross said.

New orders edged up 0.2% after five straight declines, while the average workweek lengthened by 0.3%.

"Higher commodity prices also reflected the improved tone of growth in developed nations, with Europe apparently pulling out of its prolonged recession," Mr. Cross said.

He said this was reflected in the stock market where prices levelled off in August. The two other financial market indicators were little changed.

The housing index rose 1.9%, slightly less than its gains in June and July due to a slowdown in housing starts.

Mr. Cross said new claims for Employment Insurance rose 1.2%, indicating a softening of labour market conditions in Canada for the first time since March.

The next release of MLI's leading economic indicator is October 31, 2013.

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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David Watson

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