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Spring appears to be also sending up green economic shoots

03/30/2012 by John Clinkard

While there continues to be some large clouds on the economic horizon, indicators from several sources suggest that the economic prospects of a majority of developed countries, including Canada, are taking a decided turn for the better.

For example, the OECD’s Composite Leading Indicator continues “to signal a positive change in momentum” in the OECD as a whole.

Turning to individual countries, the OECD notes that, to date, the United States and Japan appear to be providing most of the support to this strengthening in overall momentum.

Having said this, the OECD indicated that there were tentative signs of stronger activity in all of the other OECD economies and in the Euro area as a whole.

This more positive outlook for Europe was reinforced in a recent Deutsche Bank report on Germany, the continent’s largest economy. The report notes that after hitting a cyclical low of 106.5 in October of 2011, the Ifo Business Climate Index published by the Center for Economic Studies, has trended steadily higher to its present level of 109.6 (February).

The improvement in the Ifo Index has been accompanied by a pickup in the Purchasing Managers’ Index (PMI) of the Institute of Supply Management (ISM), which increased from 48.4 to 51 in January thereby pointing to an expansion of industrial activity.

While the Deutsche Bank report noted that there was a persisting risk to growth associated with the European sovereign debt crisis as well as due to a further escalation of world oil prices, it projected that growth would stagnate in the first half of the year and expand slowly in the second half of the year.

Turning to the outlook for the U.S., North America’s economic engine, several economic indicators are pointing in a positive direction. First, the Conference Board’s Leading Economic Indicator has been trending higher since September of 2011 and the index currently stands at 94.9, its highest level since July of 2008.

In addition, although the PMI retreated slightly in February of this year, it has been reflecting expanding manufacturing activity in the U.S. for the past 33 consecutive months.

Finally, following a protracted period of stagnation, the U.S. has added an average of 200,000 jobs over the past six months.

In Canada, although employment has remained in the doldrums for the past several months, a number of forward looking economic indicators are flashing green.

First, for the past eight months, the Statistics Canada Leading Indicator has been steadily trending higher. Also, following a brief retreat below the critical 50 level in November, the Ivey School of Business’s Purchasing Managers’ Index has also pointed to a stronger pattern of economic activity since the beginning of the year.

And finally, as noted in the last Economic Snapshot, the latest survey of business investment intentions indicated that investment plans in both the public and the private sector are significantly stronger for the current year than they were for 2011.

Canada: Composite Leading Indicator vs Gross Domestic Product

Canada: Composite Leading Indicator vs Gross Domestic Product
Data source: Statistics Canada/Chart: Reed Construction Data, CanaData.


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