June 18, 2010 / 3:24 PM / 7 years ago

Canadian economy powering ahead, latest data show

3 Min Read

OTTAWA (Reuters) - Canada's composite leading indicator, a broad measure of how the economy is performing, rose for a 12th consecutive month in May in another sign of how well the country is recovering from the global financial crisis.

The indicator advanced by 0.9 percent from April, Statistics Canada said on Friday, a larger move than the 0.7 percent increase expected by market operators.

Of particular note was the relatively strong performance by the hard-hit manufacturing sector, which has had trouble dealing with the high Canadian dollar, weak U.S. markets and greater foreign competition.

All three manufacturing indicators rose. New orders were up by 4 percent, the fourth consecutive monthly increase, the average work week posted its first increase since September 2009, while the ratio of shipments to inventories posted its 10th gain in a row.

"The indicator has been firmly in expansionary territory since early last summer. That is supportive for second-quarter GDP growth," said Derek Holt and Gorica Djeric of Scotia Capital Economics.

The Canadian dollar strengthened slightly and by 11:05 am (1450 GMT) was at 1.0246 to the U.S. dollar, or 97.60 U.S. cents, up from C$1.0290, or 97.18 U.S. cents, before the figures were released.

Bank of Canada Governor Mark Carney said in a speech on Friday that Canadian economic growth would most likely be the strongest among the Group of Seven leading industrialized nations over the next two years.

The central bank raised its key interest rate from record lows on June 1 but this week it warned markets against expecting another hike on July 20, citing the unpredictable global economy.

That said, yields on overnight index swaps, which trade based on expectations for the central bank's key policy rate, now suggest there is a 82.1 percent chance of a 25 basis point hike next month.

Finance Minister Jim Flaherty, testifying to the Senate's finance committee late on Thursday, repeated Ottawa's line that the recovery is still fragile.

Statscan noted the housing index dropped by 1.2 percent in May -- its first decline since April 2009 -- in another sign that Canada's recently hot market for homes is starting to cool.

In another sign of confidence in Canada's economic performance, Statscan said foreigners resumed their substantial purchases of Canadian securities in April, increasing their holdings by C$12.4 billion ($12.2 billion).

Foreigners had sold C$638 million worth of Canadian holdings in March.

($1=$1.02 Canadian)

Reporting by David Ljunggren; editing by Peter Galloway

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