Ottawa – The Composite Leading Index, a new economic indicator published for the first time today (Jan. 31, 2014) by The Conference Board of Canada, shows that the Canadian economy will grow in the first half of 2014 – but only modestly.
The increase in the Index of 0.3% in December 2013 matched the gains made in both October and November. While this trend signifies that the economy is growing, the Index also projects that Canadian growth will not pick up the pace until later in the year.
The Composite Leading Index sums up the performance of 10 components that track the short-term course of the economy. The newest of the Conference Board’s macroeconomic indicators, it signals changes in the business cycle (periods of faster and slower economic growth) approximately six or seven months in the future.
“The modest gains in the index in recent months, combined with the uneven performance of individual components, suggest that the economy has not yet begun to feel the benefits of strengthening US demand,” said Philip Cross, author of the CLI for the Conference Board.
“Unusually severe weather in December may have weighed down some parts of the economy. In particular, the indicator for the housing industry suffered in December, some of which can be attributed to the weather in many parts of the country.”
The composite leading index retains six of the 10 components from the now-discontinued Statistics Canada index:
– the housing index
– the U.S. leading indicator
– the money supply
– the stock market
– the average workweek in manufacturing, and
– new orders for durable goods.
Four new components are:
– the Conference Board of Canada’s Index of Consumer Confidence
– commodity prices
– claims received for Employment Insurance, and
– the spread between the interest rate for private versus government short-term borrowing.
Four of the 10 components in the index expanded in December, and six components declined. The US Leading Indicator, produced by The Conference Board Inc., provided the most striking improvement. With a gain of 0.6 % in December, the US Leading Indicator continued to climb. Increased economic activity in the US is expected to feed export demand in Canada.
Overall, financial market conditions pointed to higher growth in Canada. The Toronto Stock Exchange ended the year on a positive note, while the growth of the money supply improved slightly. The interest rate spread widened slightly, reflecting marginally higher borrowing costs in the private sector.
New claims for Employment Insurance fell for a fourth straight month. Despite a setback in employment in December, this trend reflects slowly improving labour market conditions in Canada.
Movements in other components of the CLI illustrate that the economy is growing at a modest pace. The Conference Board of Canada’s Index of Consumer Confidence retreated in December and barely gained ground in January. The Canadian housing index fell by 0.9% in December, its second consecutive monthly decline.
The strengthening of US demand and the lower value of the Canadian dollar did not translate into stronger indicators for manufacturing. The average work week and new orders for durable goods both slipped, and commodity prices fell for a third straight month.
The CLI will be published monthly by The Conference Board of Canada. It is available to subscribers of the Conference Board’s e-library.
About the Author
Philip Cross spent 36 years at Statistics Canada specializing in macroeconomics. He was appointed chief economic analyst in 2008 and was responsible for ensuring quality and coherence of all major economic statistics. During his career, he also wrote the ‘Current Economic Conditions’ section of the Canadian Economic Observer, which provides Statistics Canada’s view of the economy.