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Thursday's encouraging report on gross domestic product also caused a surge in the Citigroup Economic Surprise Index for Canada, a further sign that December may have marked a bottom for the Canadian economy.
The Citigroup Economic Surprise Index (left) compares actual economic data points to the average expectations of prominent economists. This relatively new benchmark is rapidly gaining popularity because of its ability to detect turning points. For instance, the sharp slide in the Surprise Index beginning in September of 2012 – domestic economic data was coming in well below consensus estimates – provided early warning of the eventual Canadian contraction in GDP during December.
The news now is far more positive. Statscan's update on GDP showed sluggish growth of 0.2 per cent that nonetheless exceeded economist expectations. This caused a sharp jump in the surprise index from minus-108 to minus-36 – still negative but improving rapidly. (A reading of zero signals that average economist projections are exactly accurate.)
The usefulness of the Surprise Index as a market indicator for investors is still being sorted out. Fans of the index can point to May and June of 2012, when the index jumped higher despite a weaker TSX, and argue that the index predicted the late year runup in domestic equities.
Markets aside, a rising Citigroup Economic Surprise Index is unequivocally good news for the domestic economy. The inability of economists' complicated modelling techniques to predict the recent rebound could be a sign that stronger domestic growth is bubbling just below the surface, and that December's poor data outs the worst behind us.
Scott Barlow is a contributor to ROB Insight, the business commentary service available to Globe Unlimited subscribers. Click here to read more of his Insights , and follow Scott on Twitter at @SBarlow_ROB .
Scott Barlow