Source: The Canadian Press

The Canadian economy continued to grow in May as a recovery in manufacturing helped offset a slowdown in housing and continued volatility in the stock market, Statistics Canada figures released Friday show.

Leading indicators – a statistical sign of future direction for the economy – rose 0.9 last month from May 2009, a better-than-expected gain that marks the 12th consecutive month of advances year over year.

Last year’s recovery from the short and sharp 2008-2009 recession was led by housing and the stock market, but those sectors have softened recently under the weight of rising interest rates and worries about the global debt crisis.

The leading indicators index includes 10 components that collectively provide insight into where the economy is likely headed in the next six to 12 months.

Last month’s reading was equal to the 0.9% gain recorded in April and about equal to the average increase over the past 12 months. After torrid growth in the first quarter, the economy is again expanding and growth returning to the industrial sector, which was battered during the recession by restructuring in the auto sector.

“Overall, the report underscores the strong positive momentum that continues to exist in the Canadian economy, and it suggests that this momentum continued in (the second quarter),” a TD Economics report said.

The leading indicators index includes 10 components that collectively provide insight into where the economy is likely headed in the next six to 12 months.

In its report, Statistics Canada said five of the 10 indicators rose during the month, with, big gains in new orders of durable goods and furniture and appliance sales.

Statistics Canada said the housing component of the index dropped 1.2% in May, its first decline since April 2009.

Sales of existing homes slipped from the record high reached over the winter and new home starts stalled.

Economists expect that trend to continue in the coming months as pent-up demand from the recession cools and interest rates are expected to move higher.

Demand for autos remained soft and the Toronto Stock Market stopped trending up after 13 straight increases.

Meanwhile, the three manufacturing indicators all rose.

New orders were up four per cent, the ratio of shipments to inventories strengthened for the tenth straight month and the average work week posted its first increase since September 2009.

The U.S. leading indicator continued to be a source of growth and advanced 0.7%, led by manufacturing demand and a continued positive interest rate spread.