First-quarter acceleration in US GDP may provide boost for Canada's economy

OTTAWA, April 30, 2013 – The Macdonald-Laurier composite leading index rose 0.3% in March, a slight improvement on its downward revised gain of 0.2% in February and the 0.1% increase in January.

The mild upturn in growth of the overall index so far in 2013 suggests continued modest economic growth in the first half of the year, said Philip Cross, Macdonald-Laurier Institute (MLI) Research Co-ordinator and former chief economic analyst at Statistics Canada.

However, the pick-up in real gross domestic product (GDP) in the United States in the first quarter may provide a boost for growth in Canada early in the year, he said.

Five of the indicator's nine components rose in March, while one was unchanged and three retreated.

"The financial market components continued to lead growth," Mr. Cross said. "The real money supply rose 1.1%, the largest increase of any component, despite a large downward revision to the February data."

The Toronto stock market continued its upward trend, although the rate of growth has slowed so far this year. The interest rate gap between the private and public sector levelled off after two consecutive declines.

Mr. Cross said the outlook for exports remained mixed.

"The US leading indicator continued to improve upon its sluggish performance late in 2012, with a 0.2% gain," he said. "This upturn was matched by real GDP, which rebounded smartly in the first quarter after a near-stall in the fourth."

However, new orders for durable goods fell 1.2%. Mr. Cross said this partly reversed three straight gains, "as the improving tone of US auto sales has been slow to translate into higher production in Canada."

The average workweek in factories edged down for the third straight month, including a downward revision for February.

Housing remained the most notable drag on domestic demand, Mr. Cross said. The housing index fell 1.4%, its ninth consecutive decline. While the market for existing homes has improved slightly early in 2013, housing starts continued to fall.

Elsewhere, two components rebounded from declines the month before. Commodity prices rose 0.4%, buoyed by further gains in lumber and natural gas after extended periods of weakness in both.

"However, both commodity prices and the stock market retreated through most of April, in response to the turmoil in the EU emanating from the banking crisis in Cyprus," Mr. Cross said.

Claims for employment insurance rose 0.7% after a brief setback.

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 May xx, 2013.

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