The Canadian economy is in recovery mode according to the latest report on the leading economic indicators from Statistics Canada. The composite leading index grew 0.5% in August, the same rate as in July. These are the two best increases in over a year. The August gain was slightly ahead of analyst expectations.

Growth extended to seven of the 10 components, including a significant increase in the financial indicators. The stock market indictor has risen 17% since April.

On the downside, manufacturing continued to weaken, but the blackout in Ontario is partly to blame for that weakness. Excluding manufacturing, the overall index rose 0.8%, the largest since May 2002 when both GDP and employment were growing strongly. An acceleration in new orders for capital goods, up six months in a row, is particularly encouraging for business spending.

All the indicators of household demand accelerated. Housing recorded a fourth straight advance when housing starts rose in response to strong demand in July. The upturn was most pronounced in Quebec, where vacancy rates in some markets hit 10-year lows.

Based on today’s robust leading indicator data, RBC Financial says that economic weakness was likely a blip in Canada, not a trend. It adds that interest rates are likely low enough.

“Today’s leading indicator confirms that growth momentum is returning to the Canadian economy and that the second quarter drop in economic activity was of a one-time variety owing largely to several unforeseen shocks,” RBC concludes.

“The improving growth picture also supports the notion that the current Bank of Canada policy rate may be sufficiently low enough to allow the small amount of economic slack to be nudged away. But while steady policy rates remain the likely outcome, the Bank will also remain mindful of the risks that a stronger Canadian dollar could have on the economy.”