New economic indicator suggests Canadian economy will avoid downturn

A new monthly leading economic indicator is suggesting the Canadian economy is experiencing slow, steady growth and will avert a downturn in 2012.

 The Leading Economic Indicator Series by the Ottawa-based Macdonald-Laurier Institute is aiming to fill the void left by Statistics Canada Composite Leading Indicator, which the federal agency cancelled last May.

The goal of the indicator is to provide insights into the future course of the Canadian economy — giving advance warning of recessions and upturns. The new index will sum up performance of nine components that track developments in key sectors such as financial markets or manufacturing to signal upcoming changes in the business cycle – most notably recession or recovery.

The inaugural MLI Leading Economic Indicator rose 0.1 per cent in August after four consecutive months of 0.2 per cent gains. The slow, steady growth of this indicator suggests the Canadian economy will avert a downturn in 2012.

“Starting with the stalemate of the U.S. budget, then Europe’s slide into recession and a slowdown in Asia, there have been constant concerns and reports Canada’s economy would relapse into recession. The leading indicator showed a trend to slower growth, but no recession, something borne out by the data on output and employment,” Philip Cross, MLI research and editorial coordinator said in a statement.

The new MLI Indicator retains six of the 10 components in the original Stats Can index – housing index, U.S. leading indicator, money supply, stock market, average workweek in manufacturing, and new orders for durable goods.

Added to the new index are commodity prices, employment insurance claims and spread between government and private-sector interest rates, to bring the total to nine components.

Altogether, these nine components cover all the major cyclical parts of the economy, including financial markets, the labour market, exports, housing, and manufacturing, Cross said.

“Predicting the economy is a lot like predicting the weather to most people,” Cross said. “If there is healthy growth, it is human nature to expect continued growth. But business cycles change just as the weather does.”