Home > macro economics > Canada’s leading indicator drops… mostly due to housing!

Canada’s leading indicator drops… mostly due to housing!

The previous two releases (May & June 2010) for this indicator also showed a substantial slowdown in housing activity.

Today’s release from Statistics Canada is no different:

The composite leading index slowed to a 0.4% increase in July, after a gain of 0.7% in June. Most of the slowdown originated in the household sector, where three components fell. None of the seven other components decreased.

The housing index continued to retreat from its recent highs, declining 4.1%. Both housing starts and sales contributed to the decline. The slump in house sales was reflected in a 0.6% drop in furniture and appliance sales. Demand for other durable goods posted a fifth straight decline.

This negative housing news combined with the recently released mid-month housing activity by CREA should clear all doubts about a slowdown in housing… housing slow is here and here to stay for another 12-18 months.

Back to the leading indicator… in case you are wondering what is the leading indicator supposed to lead? Well, again here is StatCan’s definition:

The Canadian Composite Leading Indicator is comprised of ten components which lead cyclical activity in the economy and together represent all major categories of Gross Domestic Product (GDP). It thus reflects the variety of mechanisms that can cause business cycles.

I wonder what is the lead time… i.e. by how many days/weeks/months/quarters/years does the leading indicator lead the economy? In other words, if the leading indicator rises in a given period, when is the economy expected to follow the leading indicator… Again, according to StatCan

Average lead times can be highly variable, and the leading index will always be more volatile than GDP since the components are specifically selected as representing very sensitive indicators of total demand and output.

That didn’t answer my question…anyone?

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