The markets continued their upward trajectory on Friday, the first day of the second quarter, thanks to better-than-expected job numbers in the United States.NICHOLAS KAMM
The U.S. economy is hitting its stride, reaching a pace that will help it push through headwinds such as rising energy costs.
Payrolls for Canada's biggest trading partner increased by a net 216,000 jobs in March, surpassing economists' expectations and bringing the unemployment rate to a two-year low.
As in Canada, where manufacturers are powering economic growth, U.S. factories are leading the rebound in employment and are expected to continue adding to payrolls in the months ahead. Stock markets continued a winning streak Friday, with the Dow Jones industrial average reaching the highest point since the summer of 2008, as investors grew increasingly confident that the world's largest economy now can be counted on for sustainable, if unspectacular, economic growth.
It's difficult to overstate the significance the jobless rate at this moment in American history. Joblessness dominates the political discourse, and the Federal Reserve's controversial attempt to stimulate demand by purchasing $600-billion (U.S.) in U.S. government debt is focused on reducing the unemployment rate.
"The pace of hiring is now running at a cruising speed generally associated with the expansion phase of the economic cycle and a declining unemployment rate," Stéfane Marion, chief economist at Montreal-based National Bank Financial, said in a note to clients Friday. "This development should help put to rest about the sustainability of the current business cycle."
The U.S. Labour Department said Friday the average rate of hiring over the previous three months accelerated to 188,000 from 167,000 in February, the fastest pace since early 1987. A separate Labour survey of households showed the unemployment rate fell to 8.8 per cent in March, the lowest in two years and the fourth-consecutive monthly decline from a rate of 9.8 per cent in November.
Significant hiring has been the missing ingredient in the U.S. recovery. Hiring was notably absent as the economy began expanding from an 18-month recession in June, 2009.
The monthly unemployment rate was as low as 4.4 per cent in 2007, a year when more than 146 million people had jobs. By October, 2009, the jobless rate had surged to 10.1 per cent, and over the 13 months that followed, the rate never dipped lower than 9.5 per cent. In 2010, the number of employed was only a little more than 139 million.
But - at last - hiring appears to be catching up with other positive indicators, such as buoyant stock markets, higher corporate profits and record exports.
The net 216,000 non-farm jobs created was greater than the Wall Street consensus, which Merrill Lynch said was 190,000, and stronger than 194,000 in February. The biggest drag on hiring was the public sector, where states and municipalities, struggling to shrink bloated deficits, cut some 14,000 positions in March. It was the fifth-consecutive monthly decline in government employment.
Factories are driving employment growth as they take advantage of a weaker dollar to gain a bigger share of booming overseas demand in countries such as China and Brazil. Manufacturing payrolls increased by 17,000 in March, the fifth straight monthly increase.
There were 196,000 more people working in manufacturing in March than a year ago. Separately, the Tempe, Ariz.-based Institute for Supply Management's said its manufacturing index was 61.2 in March compared with 61.4 in February, suggesting that factory activity remained at the highest level since May, 2004. The institute's employment gauge slipped to 63 from 64.5 the prior month, a level that nonetheless signals strong hiring intentions, economists said.
Increased hiring suggests companies are gaining confidence that the economy is strong enough to withstand shocks, unlike last summer, when Europe's sovereign debt crisis flared, forcing the Fed to launch its asset-purchase program to keep economic growth from flagging.
As the effects of the financial crisis began to recede, companies chose to try to keep up with demand by boosting productivity rather than taking on new salaries. But efficiency gains are finite. Many companies now are at a point where they must add workers or forego sales.
"We're at the point where productivity is maxed out, so job growth is going to come," James McNerney, chief executive officer of Boeing Co., said Thursday at conference in Washington hosted by the Export-Import Bank. Mr. McNerney said Boeing, the world's second-biggest plane maker, will add 3,000 jobs this year to "fund demand."
Some economists speculated the March jobs report could prompt the Fed to end its asset-purchase program earlier than the existing June deadline. More hiring will boost economic growth at a time when higher energy and food prices already are putting upward pressure on inflation. Oil prices climbed to about $108 a barrel (U.S.) Friday, the highest since September, 2008.
While hiring is picking up, the pace is modest, and therefore the majority of the Fed's policy makers likely will be persuaded to spend the full $600-billion.
Pierre Lapointe, global macro strategist at Brockhouse Cooper in Montreal, reminded clients in a note that it will take monthly job creation of 250,000 to make a serious dent in the unemployment rate, which remains well above the Fed's preferred level of about 5.5 per cent.
The Labour Department reported that hourly earnings were flat, and the average work week was 34.3 hours, unchanged from February, curbing the positive effect of increased hiring on overall demand.