August 4, 2010
Economy at a Glance
Waiting to see if the other shoe drops in Canada
ALEX CARRICK
Chief Economist, CanaData
Statistics Canada’s leading indicator index for June recorded a 1.0% gain versus May. This was only a slight pullback from upwardly revised gains of 1.1% in both May and April.
The leading indicator index has been moving in a positive direction for the past 13 months. Prior to that, from fall 2008 through summer 2009, it declined month to month or stayed flat for 9 straight periods.
Manufacturing has been propelling the forward movement. In June, durable goods orders were +2.3% month to month, with aerospace products and machinery in the forefront.
The average workweek in manufacturing has been increasing (+0.8% month to month), although this has not translated into more jobs as of yet.
The shipments-to-inventory ratio made a further gain in June, due to higher sales while inventories stopped declining.
The money supply (+0.8%) and business and personal services employment (+0.4%) also made positive contributions to the leading indicator index in the latest month.
Durable goods retail sales (-0.5%), however, were disappointing. It was the auto sector that pulled this sub-category down.
Also in retail sales, furniture and appliances were +0.5%. But one has to wonder how long this strength will last, with home-buying activity taking a breather.
On that subject, June’s housing sub-index recorded a decline (-1.9%) due to existing home sales retrenching and new home starts easing off.
The Toronto Stock Exchange (+0.3%) and the U.S. Conference Board leading indicator (+0.5%) were both positive in June but are in jeopardy of turning negative during the summer months.
The outlook for the U.S. economy has turned more precarious. By extension, Canada’s future is less certain due to the close trade ties between the two nations.
Add to this news from Asia that China’s red-hot economy may be cooling, with resultant lower demand for Canada’s commodities, and the outlook for the leading indicator series may soon be less bubbly.
Ironically, in Europe where the concern about the recovery first began as an aftermath of austerity measures to combat debt and deficit problems, the lower-valued euro is stimulating export sales to a degree that may see the region through with less pain than was anticipated.
For more articles by Alex Carrick on the Canadian and U.S. economies, please see his market insights. Mr. Carrick also has an economics blog. His lifestyle blog is at www.alexcarrick.com
Data source: Statistics Canada
Chart: Reed Construction Data – CanaData.
