Canada's composite leading index fell 1.3% in March following a 1.4% drop in February, according to data released Wednesday morning. The data comes on the heels of Tuesday's surprise interest rate cut by the Bank of Canada.

The contraction in the manufacturing sector intensified as widespread cutbacks were implemented in the auto industry early in the new year. This was offset by a marked slowdown in the fall of the housing and stock markets.

All three manufacturing indicators fell in unison. The sharpest decline was for new orders, down a record 10.3% due to falling demand for autos. Falling shipments also lowered the ratio of shipments to inventories. Preliminary data for February on the number of auto assemblies point to a rebound of over one-quarter of output.

The financial indicators continued to improve. The money supply remained the only component to expand. The stock market continued its downward trend, dropping 2.3% in March, following five straight declines averaging nearly 8% a month.

The rate of decline of the housing index also moderated to 4.3% in March from 7.7% in February. Both housing starts and existing home sales saw improvements after several months of retreat. Sales of other durable goods also posted a much lower rate of decline of 0.6%, as the rapid drop in auto sales late in 2008 began to level off early in the new year.

The BoC announced Tuesday morning that it is lowering its target for the overnight rate by one-quarter of a percentage point to 0.25 percent. Most economists were predicting that the Bank would stand pat.

The Bank now expects economic recovery to be delayed until the fourth quarter and to be more gradual. The economy is projected to grow by 2.5 percent in 2010 and 4.7 percent in 2011, and to reach its production capacity in the third quarter of 2011.

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