August 19, 2010 / 4:32 PM / 7 years ago

Economy shows new signs of slowing

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<p>People play a game of pickup soccer in downtown Toronto May 18, 2010.Mark Blinch</p>

TORONTO (Reuters) - Worse than foreseen wholesale trade and leading indicator figures on Thursday added to worries that Canada's economy is slowing, pressured by weakness in the housing sector.

While the data is usually considered secondary, especially ahead of major inflation figures on Friday, it provides further evidence that Canada's economic recovery has lost some of its shine in the second quarter.

Wholesale trade unexpectedly fell 0.3 percent in June from May, while the composite leading indicator posted the slowest increase in a year at 0.4 percent in July from 0.7 percent in June.

The figures signal that Canada is not immune to the softness seen in other major economies. The United States, Canada's top trading partner, for instance, released weak regional factory activity and tepid weekly labor figures on Thursday.

The Canadian dollar lost nearly a penny after the weak slate of data, unwinding much of the gain it made this week on expectations that BHP-Billiton's $39 billion takeover offer for Potash Corp would create demand for the Canadian currency. Bond prices edged higher in a flight to safety as stocks were weighed down by the new evidence of a lackluster recovery.

The wholesale trade data may be a mild drag on second quarter growth, but Scotia Capital analysts said the economy would still be able to show healthy expansion in June after data this week that showed factory sales had eked out a gain.

"Next Tuesday's retail sales should reinforce expectations for solid GDP growth in June given what we already know about vehicle sales having risen sharply that month," Scotia Capital economists Derek Holt and Gorica Djeric said in a commentary.

A cooling of the recently hot housing market showed up in both indicators on Thursday. Building materials registered as one of the four declining wholesale sectors, while the housing index tumbled 4.1 percent and demand for furniture and appliances also weakened in the leading indicator.

Recently, the Scotia economists had said that housing had been lost as a driver of growth after housing starts fell a third straight month in July.

Analysts expect second-quarter economic growth to be about half the 6 percent annualized rate seen in the first quarter after recent weak data on exports and employment.

However, Canada's consumer inflation report for July looms on Friday and is one of the last big pieces of information that may influence the Bank of Canada's next interest-rate policy decision in September.

Market pricing is currently slightly tilted to the bank making no change in interest rates, with rate hike expectations fading in recent weeks due to the weak data. The Bank of Canada has already raised rates twice since the start of June, and has said it will keep its options open on more rate increases amid doubts about world economic recovery.

($1=$1.04 Canadian)

Reporting by Ka Yan Ng; editing by Peter Galloway

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