Short-term signs point to stronger growth
OTTAWA - Canada's economy is exhibiting signs of warming with the weather, as the end of winter's deep freeze appears to have set the stage for a second-quarter thaw.
The Conference Board is the latest to detect improving conditions, saying Friday that its composite leading index had advanced 0.4 per cent in March, while also revising the February measure upward to 0.4 per cent.
The most encouraging signal, however, was fresh labour data from the United States showing that its economy had created 288,000 jobs in April — while also upgrading the employment numbers for February and March — to post the best U.S. unemployment rate in more than five years: 6.3 per cent.
"Our view now is we will get a little stronger U.S. economy in the second quarter and rest of the year and hopefully we'll benefit a little better than we have on the trade side," said Pedro Antunes, deputy chief economist with the Ottawa-based think-tank.
Scotiabank economists Derek Holt and Dov Zigler said the U.S. jobs number "is consistent" with their call for four per cent growth in the U.S. economy in the second quarter, the April to June months.
The big mover in the Conference Board's March composite index, a forward-looking measure that tracks 10 different elements of economic activity, was on the exports side, a welcome development for the Bank of Canada.
In recent statements to Commons and Senate committees this week, Bank of Canada governor Stephen Poloz voiced concern that exports have not adequately tracked U.S. demand, suggesting Canada may be missing out on up to $40 billion in exports. But he added that going forward he expects shipments will rise with demand.
On the positive side, he also flagged the possibility that the U.S. recovery may accelerate faster than the bank's own forecast predicts, noting that forecasters often undershoot the pace of recovery once it takes hold.
The bank has long held that it will take a fully realized U.S. recovery to not only light a fire under Canadian exporters, but also instill confidence among corporate leaders to invest in capacity-generating equipment and to significantly increase hiring.
This is especially critical to the Canadian economy going forward, said Antunes, because the composite indicator also points to softening housing sales and consumer spending. As well, government austerity, particularly at the federal level, is not helping out growth.
At present, Antunes said the most likely scenario is that the spring forward in economic activity is mostly a bounce-back from the winter slowdown and hence short-lived, although that could change if the U.S. recovery is strong.
Canadians will get additional evidence of where the economy is headed next week when federal agencies release three key indicators — on merchandise trade for March, and housing starts and employment data for April.