A little bit of sunshine for the national economy
Troy Media – by ATB Financial
The economic news hasn’t been horrible, but it hasn’t been great either. Not only has the unemployment rate in many Canadian provinces begun to increase, to go along with other labour issues (i.e. strikes), but governments are also looking to reduce spending. It might seem surprising, then, that the index of leading economic indicators keeps rolling higher.
As its name suggests, the index of leading economic indicators gives an indication of where the economy is headed. That is to say, there are certain indicators that normally precede increased economic activity. For instance, factories tend to first ask their workers to work longer to meet higher initial demand and, if the demand continues, then they’ll add more workers – the jump in hours worked is a good initial sign.
Statistics Canada released the composite index of leading indicators this morning for February. The number was 0.6 per cent higher than the previous month and was the eighth consecutive monthly gain. Of the sub-components that make up the index, it was the TSX and the new durable orders that pushed the index higher, with the TSX up 1.7 per cent and new durable orders up 1.4 per cent.
Why has the composite index shot up while most of the economic news has been lacklustre at best? One reason is that the index represents the private sector and not public sector activity, which is likely the source of future drag on growth.
Manufacturing has also changed in Canada, with imports becoming far more prominent, changing the broader impact higher orders tend to have on the economy.