The composite leading index grew 0.5% in January, almost matching its 17-month high gain of 0.6% in December, according to Statistics Canada. Very strong gains in the stock market and housing starts at the start of the year gave a boost to the overall index. These increases offset continued sluggish export demand for manufactured goods.

The housing index turned up in January after three straight declines, according to the agency. The third-warmest January on record led to a sharp rise in housing starts. But the underlying trend of housing demand in Canada remains robust, especially compared with the slowdown under way in the United States. Sales of durable goods remained weak, with auto sales slow to recover from the expiry of major incentive programs last fall and continued high gasoline prices.

Financial market conditions were buoyant to start the new year, with the stock market hitting a record high in January. Since then prices have retreated slightly, in line with a dip in prices for metals and energy. Strong demand for business services kept the services employment component expanding. Manufacturing remained lacklustre. Durable goods orders slowed sharply, especially for exports, even before the exchange rate with the United States moved sharply higher early in 2006. One encouraging sign for manufacturers is that they have reined-in inventories over the last two months, despite sluggish shipments growth. Factories also have boosted productivity sharply by slashing payrolls and freezing the workweek.