Canada's leading indicator advances 1.0% in June, cooling slightly from the upwardly revised gains in April and May.
Bottom Line
- The Canadian leading indicator rose 1.0% in June from the previous month.
- Among the components of the overall index, the housing index and real sales of other durable goods were the only ones to decline.
- The jump in the manufacturing component, specifically the 2.3% leap in new orders for durables, led the overall increase.
- The U.S. Conference Board leading indicator advanced 0.5% in the month.
- Despite the downturn in the housing index for a second straight month, sales of furniture and appliances advanced at a decent 0.5% pace.
- The unsmoothed composite leading indicator fell by 0.6% in the month.
- While the composite leading indicator is not a perfect predictor of real GDP growth, there are signs of some weakness ahead as we already expected.
Outlook
The Canadian leading indicator increased by 1.0% in June. This is the fifth consecutive increase at this pace. This jump is in line with our expectations of decent growth in second-quarter real GDP, which is a definite cool down from the first quarter result.
Among the 10 components, only two recorded declines. The housing index posted a hefty 1.9% decline in the month, reflecting slowing activity in both the new and existing home markets. This was the largest decline posted since March 2009, when Canada was severely impacted by the recession. The 0.5% drop in other durable goods sales is consistent with the trend that has been building over the past few months.
Manufacturing activity advanced at a healthy pace, but at a slower rate than the previous month. The 2.3% climb in new orders for durable goods was lead by a pick up in aerospace and machinery capital goods.
Acting as another source of strength, at least for now, was the U.S. Conference Board leading indicator, which advanced 0.5% in the month. While the monthly advances have continued for just over a year, the rate of increase is slowing.
Consumers are continuing to purchase furniture and appliances at a decent rate as the index climbed 0.5%.
The unsmoothed composite leading indicator fell by 0.6% in the month.
Bottom Line: The leading indicator results for June are very similar to the previous month. And, it remains consistent with our weaker economic forecast for the second quarter of 2010 compared with the first quarter. Housing activity is not expected to be a major contributor to growth and the U.S. Conference Board leading indicator is slowing, reflecting the headwinds facing the U.S. economy. On the flip side, manufacturing is still on an upswing and should provide lift to the economy.