Housing drives composite leading index, which signals strengthening economic growth in the second half of the year


OTTAWA, August 30, 2013 — The Macdonald-Laurier composite leading index increased by 0.4% in July after a 0.3% gain in June.


The steady acceleration in the index, from a low increase of 0.1% early in the year, signals that growth in the Canadian economy will strengthen in the second half of the year, said Philip Cross, a Macdonald-Laurier Institute (MLI) senior fellow.


"Growth in June was temporarily dampened by flooding in Alberta and the construction strike in Quebec, but a pick-up in oil and gas output will offset some of these losses," Mr. Cross said.


He said the housing index drove much of the upturn in the composite index, rising 2.1% in July after declines as recently as in April.


Both existing home sales and housing starts contributed to the gain. Still, the housing index remains about 10% below its peak in 2012.


The MLI leading Economic Indicator, established in October 2012 by Cross, former chief economic analyst at Statistics Canada, extends StatsCan's recently 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?


Mr. Cross said financial market conditions overall remained supportive for more economic growth in the latest LEI.


"The money supply expanded steadily, while the risk premium on private sector lending continued to fall, indicating higher investor confidence in lending," he said.

The stock market posted a second consecutive decline in July.


Mr. Cross said the outlook for exports remained more favourable for natural resources than for manufactured goods.


"Commodity prices rose another 0.7%, and resource sector output will begin to receive a substantial boost from the Kearl oil sands plant coming on line this summer," he said.

The US leading indicator rose 0.2%. Autos and housing remain the major sources driving growth in Canada's major trading partner, Mr. Cross said.


New orders for manufactured goods fell 0.7%, but the average workweek edged up for the second straight month.


The next release of the monthly MLI Leading Economic Indicator is Sept. 30, 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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