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A crucial week ahead for the labour market

A ‘now hiring’ sign hangs in a storefront window in downtown Thunder Bay, Dec 19, 2012. In Friday’s employment figures, it’s expected that the U.S. will show far more resilience than Canada.

Moe Doiron/The Globe and Mail

Canada and the United States will have another double-barrelled Friday when it comes to market-moving economic statistics, with both countries reporting February employment figures.

Investors will be dissecting the results closely because they are easily the most important statistics to be released by either government every month.

The unemployment rate is currently at the top of the agenda for the U.S. Federal Reserve Board, which has linked ending its highly accommodating monetary policy to a substantial drop in the jobless rate. The Canadian figures will indicate whether the slack pace of recent economic growth has begun to cause employers to start issuing more pink slips.

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Overall, economists expect the results to indicate that the U.S. is showing far more resilience than Canada, where market watchers are divided on whether the labour market will even be strong enough to propel a gain in the number of job holders, after a dismal January, when the number of payroll positions plunged by 21,900.

Poor Canadian numbers are likely to exert more downward pressure on the Canadian dollar, which has recently been trading at eight-month lows against its U.S. counterpart.

"If [Canadian] data come out as weak as we expect, you bet that markets are going to further adjust their outlook on Bank of Canada rate hikes, so that's dollar negative," says Krishen Rangasamy, senior economist at National Bank Financial Group.

Mr. Rangasamy is looking for the number of jobs in Canada to contract by 15,000.

The big reason for the poor performance is the country's growth slowdown. Canadian GDP grew by a mere 0.6 per cent at an annualized rate in the fourth quarter, and 1.8 per cent for the entire year. Mr. Rangasamy says last year was the worst since the 2009 recession and the first time Canada's growth rate has underperformed the U.S. in six years. U.S. GDP expanded by 2.2 per cent last year.

The U.S. is likely to continue to pull ahead of Canada this year, in his view. The U.S. housing market is on the rise, U.S. exports are strong, and business investment is advancing. Both countries face fiscal restraint as governments throttle spending.

"They're seeing tailwinds, we're seeing headwinds," Mr. Rangasamy said.

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Not all forecasts are as bleak. Royal Bank of Canada is looking for payrolls in Canada to have expanded by a modest 5,000 in February.

But that would still be a sharp slowdown in the pace of job creation, compared to the 12-month period ending in January. Over the past year, the number of positions expanded by 286,000, or by nearly 24,000 a month.

"We saw such strong gains through the latter half of last year and we're just a little bit wary of a pay back," says Paul Ferley, RBC's assistant chief economist, in explaining the bank's cautious stance.

The bank is forecasting that the unemployment rate will tick up to 7.1 per cent from January's 7 per cent, a consequence of the number of people looking for work expanding faster than the modest increase in positions during the month.

Turning to the U.S., the number to watch is the increase in non-farm payrolls. The consensus call is for a rise of about 150,000, a slight dip from 157,000 in January.

A big miss on the downside will likely drive stocks lower, on a view that the U.S. economy is weakening.

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The figure should give an indication of how the U.S. is faring, with all of its fiscal travails of the moment. In January, tax cuts from the Bush era on high income earners were reintroduced and payroll taxes increased on all wage earners. During February, there were jitters all month about the impact of the automatic spending cuts, known as sequestration, that went into effect on Friday.

Job gains averaged about 200,000 a month late last year in the U.S., so figures around 150,000 will indicate some slowdown in growth due to political wrangling in Washington.

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About the Author
Investment Reporter

Martin Mittelstaedt has had a varied reporting career at the Globe and Mail, covering politics, the environment and business. He opened up the Globe's New York bureau for the Report on Business, and has also been on the banking and capital markets beats. He's written extensively on investing themes. More

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