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The outlook for the economy continues to improve, based on Statistics Canada's leading indicator.

The statistics gathering agency said Wednesday the pace of decline in its leading indicator index slowed sharply in May to just 0.1 per cent. That marked the smallest of nine consecutive declines, Statistics Canada said.

In fact, the month-over-month change - from a drop of 0.9 per cent in April to the May reading of 0.1 per cent - was the biggest in the index since December, 1965.

The sharpest turnarounds came in the housing and stock market components, continuing signs of improvements in the real estate market and financial stocks.

The housing component climbed from a drop in April to a 1-per-cent gain in May as the rebound in existing home sales gathered pace. The rise in the stock market component was largely driven by higher commodity prices and financial stocks, Statistics Canada said.

TD Securities economics strategist Ian Pollick noted that eight of 10 indicators improved.

"Even though there were very few outright positive advances during the month, the fact that the pace of decline slowed so drastically is definitely an encouraging sign," Mr. Pollick said in a research note.

"As we have pointed out before, there exists a good correlation between the level of the index and [gross domestic product]in the same month."

The agency said consumers still were cautious, aside from home sales. Furniture and appliance sales fell, as did other durable goods. Manufacturing also continued to erode, as other indicators have suggested.

"Despite steep cuts in output, shipments continued to fall faster than inventories of finished goods," Statistics Canada said. "New orders remained weak, especially for exports and capital goods. One encouraging sign for Canadian exports was that the leading indicator for the United States stopped declining, after over a year of steady losses."

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