Largest increase in 12 months suggests economic growth positioned to strengthen as 2013 unfolds

OTTAWA, March 28, 2013 – The Macdonald-Laurier composite leading index accelerated noticeably in February, rising 0.4%, its largest increase in 12 months.

The advance reflects the transitory nature of some of the forces that restrained growth at the turn of the year, and an improving tone in the US economy, said Philip Cross, Macdonald-Laurier Institute (MLI) Research Co-ordinator and former chief economic analyst at Statistics Canada.


"This leaves growth in Canada positioned to strengthen as the year unfolds," he said.

The leading indicator for the United States continued to strengthen markedly early in 2013, rising 0.4% in February. As recently as late last summer, the US index was declining.

Mr. Cross said the turnaround in the United States was led by further gains in housing and improved credit conditions, as US households easily absorbed the impact of fiscal tightening by the federal government.

Personal income in the United States dipped in January as taxes rose. However, household net worth has recovered almost all its losses incurred in 2007-2009, thanks to gains in the stock market and house prices in recent months.

The upturn in US demand was reflected in a 2.6% surge in new orders for durable goods manufactured in Canada.

"The pickup in the US housing market has already shown up in improving demand for Canadian lumber," Mr. Cross said. "Sales by the wood industry increased 18% in the past year, the strongest gain in the manufacturing sector."

Higher orders in manufacturing have not been reflected in labour demand, however, as the average workweek and employment in factories have remained little changed.

Financial market conditions remained a major source of strength in the leading index. The Toronto stock market rose 0.8%, its fifth consecutive increase. The real money supply also continued to expand steadily.

The housing index posted the largest decline of any component, falling 3.0%. "Most of this drop originated in lower housing starts, as existing home sales have levelled off so far this year," Mr. Cross said.

Commodity prices edged down 0.2% for the second month in a row.

Claims for employment insurance rose 0.7%, a negative signal about labour market conditions even as the unemployment rate remained unchanged in the first two months of the year.

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 April 25, 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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