Economy shows signs of growth

Canadian strength tied to that of U.S.

Despite indications to the contrary, Canada’s economy may actually be chugging along at a steady — if not stellar — pace.

Signs of growth are continuing to appear, according to a leading Canada indicator, and much of that strength is the product of an improving U.S. environment.

The Macdonald-Laurier composite leading index advanced 0.2 per cent in January, following a 0.3-per-cent gain in December, but still matching increases in the previous three months. Five of the nine index components were up in January, with Canadian durable goods orders rising 1.5 per cent, the biggest increase since June.

“Components related to export demand showed the most improvement, reflecting the upturn in the U.S. markets for autos and housing,” the Ottawa-based Macdonald-Laurier Institute (MLI) said Tuesday.

Contrast that with a leading indicator by the Organization for Economic Co-operation and Development that has provided a much more downbeat reading on the Canadian economy.

The Paris-based OECD index has posted just one monthly increase since February 2011.

“Despite the OECD index’s persistent pessimism, the Canadian economy recorded slow but steady growth in both gross domestic product and employment over the last two years,” said Philip Cross, MLI’s research co-ordinator.

“The trends have been entirely in line with what MLI’s leading index has forecast,” said Cross, formerly chief economic analyst at Statistics Canada.

The leading MLI indicator for the U.S. increased 0.3 per cent last month, mainly the result of a upturn in that country’s manufacturing sector.

“This suggests that the sudden drop in manufacturing shipments in Canada in December, notably in the auto industry, was due to temporary factors that will be reversed early in the new year,” Cross said.

The housing component, however, “remained the largest drag on overall growth,” falling 2.1 per cent, he said.

“All of the drop originated in a sharp decline in housing starts in January, as the slow retrenchment in building since last summer was compounded by the coldest weather in several winters.”

Still, the index for sales of existing homes edged up slightly in January — the first advance since tighter mortgage-lending rules were introduced by the Finance Department in July.

As well, the MLI index showed employment insurance claims declined 0.5 per cent last month.

Canada’s labour market has been see-sawing in the past year.

The

unemployment

rate eased to seven per cent in January, even as the economy lost 21,900 jobs during the month. That came after 31,200 jobs were created in December and following a jump of 56,300 new hires a month earlier.

Exports have also been dragging and business investment has yet to fill the slack expected from a levelling off of consumer spending and the cooling housing market.

On Monday, Bank of Canada governor Mark Carney acknowledged the economy was not growing as quickly as expected.

As recently as January, Carney and his policy team estimated 1.9 per cent growth for all of 2012. Many economists also feel that is overly optimistic.

The final tally on December’s economic growth, and for the fourth quarter of last year, will be released Friday by Statistics Canada.