The signs increasingly indicate Canada will be out of recession by the end of the year, if not slightly sooner, even though consumers remain wary and unemployment is ticking higher, new data show.
Two separate economic indexes that gauge the conditions that create economic growth rose Tuesday, suggesting the economy was beginning to heal and growth would resume before the end of the year. However, without consumers on board, that growth is expected to grind along slowly.
The Desjardins Leading Index rose for a second consecutive month in May, to be up 1.1% after a 0.5% rise in April.
“If the DLI continues to rise this summer, the current cycle’s trough could be reached as of the fall, allowing a real recovery to materialize after that,” said Hélène Bégin, a senior economist at Desjardins.
All components of the index, with the exception of consumption, rose in the month. The financial component became positive, the export component stabilized and the housing group posted a large increase. Despite these improvements, consumers continue to retrench amid the uncertain employment outlook.
Ms. Bégin said the need to rebuild savings and a rising number of bankruptcies, which are up 15% since the start of the year, would weigh on consumption for the remainder of the year.
“A strong comeback is unlikely as households are in a fragile financial situation,” she said. “Consumption’s coming recovery could be fairly moderate and it will set the tone for the economic recovery overall.”
Meanwhile, the Ivey Purchasing Managers Index, an indicator of business activity, jumped more than 20% to 58.2 in June. A reading above 50 indicates an increase in activity. The employment index for June remained at 50, while supplier deliveries rose to 51.9 and prices increased to 60.4. Inventories was the only component to register a decline in activity, slipping to 43.
The improvement in the index was a welcome sign. However, Millan Mulraine, an economics strategist at TD Securities, noted that activity remained weak, particularly when adjusted for seasonal changed. He said headline PMI rose a more modest 11% to 48.4 in May once seasonally adjusted.
“On the whole, with the headline index on a seasonally adjusted basis remaining below the all-important 50-threshold, it suggests that the Canadian economy is continuing to contract, even though at a diminishing pace,” he said.
Building permit figures released Tuesday by Statistics Canada were also better than expected and suggested a rise in construction activity in the coming months. The number of building permits issued in May rose a strong 14.8% from the previous month and pushed the value of permits above the $5-billion mark for the first time since October 2008.