The Canadian and U.S. economies have slipped according to the latest economic numbers, released today, but Canada’s is far more robust, according to bank analysts.

Canada’s leading economic indicator was up 0.7% in May. The U.S. leading indicator also slipped, dropping to 0.3% in May from 0.5%. While the Canadian index was down, this was a drop from its highest levels in 20 years. “The indicator points to a robust economy fuelled by healthy domestic demand and further underlines the widening divergence in growth patterns between Canada and the United States,” says RBC Financial Group.

By contrast, half of the U.S. index’s components declined outright. “This report continues to argue for a divergence in the path of monetary policy in Canada and the United States in the months ahead as Canadian rates pull ahead of U.S. rate and continue to lift the Canadian dollar,” says RBC.

It was also reported that Canadian purchases of foreign stocks and bonds have exceeded non-resident purchases of Canadian liquid assets in each of the past three years. BMO Nesbitt Burns says that this is poised to happen again in 2002. “This is perfectly understandable in view of the fact that Canada has been running a current account surplus since 1999 and, by definition, must run an offsetting capital account deficit. Still, it comes as a bit of a surprise that Canadian investors continue to be enthusiastic buyers of U.S. equities and bonds, even as the U.S. dollar is in full retreat and stocks are struggling mightily. Canadians poured $3.5 billion into foreign stocks and bonds, with almost half the total put into U.S. Treasuries.”

“In contrast, non-resident investors have simply stopped buying Canadian stocks, despite the favourable cyclical story for resources and the firming Canadian dollar,” BMO notes. “However, Canadian bonds – especially corporate product – remain in demand, with net purchases of $1.4 billion in April and $6.3 billion so far this year. As has been the case for years, though, the demand is largely for US$-denominated product.”

http://www.bmonb.com/Economics/efax/common/efax.asp?issue=20020625a