MLI Leading Economic Indicator shows an upturn in May, but turmoil lies ahead due to British vote to leave European Union, writes Philip Cross
OTTAWA, July 4, 2016 – The economy is poised to grow more quickly, according to the MLI leading indicator, but there could be trouble ahead.
The Macdonald-Laurier Institute composite leading index surged by 0.4 per cent in May, after an upward-revised gain of 0.2 per cent in April.
“The upturn of the index mostly reflects the passing of the effect of the slump in commodity and financial markets at the start of the year on the index,” writes Philip Cross, the creator of the index. “This is smoothed with a five-month moving average”.
However, Cross notes, the British vote to leave the European Union unleashed another round of turmoil in markets late in June. This may limit the rebound in the Canadian economy in the second half of the year from the disruption to oil sands production in the second quarter from wildfires.
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.
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 months in advance, with an error rate of less than five 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.
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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