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Canada's September leading indicator index falls after 15 months of gains

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Alex Carrick

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Alex Carrick is Chief Economist for CanaData, Reed Construction Data’s Canadian economic forecasting and statistical service.

Economists

For the first time in more than a year, the leading indicator index published by Statistics Canada declined on a month-to-month basis in September. This is consistent with other accumulating evidence that the Canadian economy is slowing down. A major problem for Canadian industry is the sluggish economy in the United States. In the latest week, the number of first-time out-of-work insurance seekers in the U.S. dropped by 23,000. That sounds like a dramatic improvement, but it’s partly because the previous week’s figure was revised upwards by 13,000.

For the first time in more than a year, the leading indicator index published by Statistics Canada declined on a month-to-month basis in September. This is consistent with other accumulating evidence that the Canadian economy is slowing down. Canada’s gross domestic product (GDP) growth in the first quarter of this year was a very robust 5.8% annualized. But in the second quarter, the GDP increase fell back to a more modest 2.0%. There has been a similar pattern of deceleration in national output in the United States. In fact, a key factor holding back Canada at this time is the sluggish U.S. economy. This is felt through cross-border trade. Canada’s merchandise trade account is in deficit, whereas the historical norm is a sizable surplus. The leading indicator index is comprised of ten sub-indices. There was an even split between the number of sub-indices that increased in the latest month and those that declined. The housing-related series posted the sharpest drops. The specific housing sub-index, made up of both starts and sales, pulled back 3.2% month to month. Sales of furniture and appliances that are destined to go into homes declined 0.7% versus August. Manufacturing struggled for the first time this year. New durable orders were down 1.9% month to month and the average workweek was also off, although only slightly at -0.3%. Most instrumental in moving the composite index forward in September were “other durbable goods” retail sales (+0.9% month to month), a further increase in the money supply (+0.5%) and Toronto Stock Exchange (TSX) share prices (+0.3%). The TSX has been recovering nicely due to strength in commodity prices. Gold set a record earlier this year and silver has registered rapid percentage gains. Oil prices have been threatening to break out and some agricultural products, along with fertilizers, have been climbing sharply. Without a doubt, however, what’s most eagerly sought is a reawakening in the U.S. economy. The unemployment rate of 9.6% (in September) south of the border remains distressingly elevated. Initial jobless claims each week provide an indication of whether any relief is imminent. In the latest week, the number of first-time out-of-work insurance seekers in the U.S. dropped by 23,000. That sounds like a dramatic improvement, but it’s partly because the previous week’s figure was revised upwards by 13,000. It’s the degree to which initial jobless claims are exceeded by new staff hiring that determines how quickly labour markets improve. The current level of U.S. initial jobless claims (452,000) remains too high. The figure needs to be around 400,000 or lower for significant progress to be realized in reducing the huge shortfall (seven million plus) in the U.S. employment level compared with before the recession. Alex Carrick

Find Canadian construction-related economic articles in Canadian Construction Market News and in the Economic Outlook section of Daily Commercial News. Mr. Carrick also has a lifestyle blog that can be reached by clicking here.

by Alex Carrick

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