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Expect Canada's jobless rate to creep higher still

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Labour market slows Canada's jobless rate is creeping up, and is expected to go higher still. The jobs markets stalled again in August, surprising economists who had expected some growth, and the unemployment rate inched up to 7.3 per cent.

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Today's report from Statistics Canada marks the second consecutive month of trouble, adding urgency to Prime Minister Stephen Harper's suggestion yesterday that he's "flexible" if more stimulus measures are needed.

Well, they are.

The economy lost 5,500 jobs as the construction, transportation and resources sector dragged down the market, The Globe and Mail's Tavia Grant writes. The health care and social assistance sectors gained.

Today's disappointing report comes amid unemployment troubles the world over, as The Globe and Mail's Barrie McKenna reports. Canada's jobless rate remains well below those of other ailing countries, but is still projected to remain above 7 per cent for quite some time.

Indeed, Derek Burleton, deputy chief economist at Toronto-Dominion Bank, projects it will creep back up to 7.5 per cent, or a bit higher, later this year.

"Canada's job market is likely to churn out only minimal job gains in the coming months, as ongoing U.S. weakness and the confidence-sapping impact of recent financial turmoil weighs on Canadian hiring," Mr. Burleton said.

In one good sign, full-time employment rose and part-time positions fell. Having said that, all of August's job creation was in the public sector, while the private sector lost 21,000 jobs.

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Over the past year, the economy has created almost 225,000 jobs, an increase of 1.5 per cent. Full-time work is up by 2.2 per cent, and part-time jobs down by 2.3 per cent.

And it's certainly not looking good for the nation's youth, who are suffering a jobless rate of 14 per cent, though that's down slightly from August.

How bad is the overall report? Canada's jobless rate is nowhere near those of many other countries - the U.S. rate is above 9 per cent, for example, and Spain's tops 20 per cent - but Mr. Harper is right to turn his attention to jobs.

Forget for a moment that Canada fares better, and has regained all of the jobs lost to the recession, and focus on the fact that almost 1.4 million Canadians can't find work. And those are the ones who are counted.

Deputy chief economist Douglas Porter of BMO Nesbitt Burns said it's clear the jobs market is softening and, like Mr. Burleton, he expects the level of unemployment to continue to inch up.

"Looking through the statistical fog, the underlying trend in Canada's job market is beginning to cool," Mr. Porter said.

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"While one shouldn't read too much into a small monthly decline in jobs - even in the very best years for the Canadian economy, two to three monthly job declines are common - there are enough other signs to suggest employment gains are losing momentum after a surprisingly strong first half of the year. We look for the jobless rate to drift slightly higher in the next few months, as the economy deals with slower activity globally."

The morning after While the markets may not be reacting much to Mr. Obama's jobs plans, economists are weighing in. Here are the views of four:

"President Obama's newly proposed $450-billion job-creation bill is equivalent to nearly 3 per cent of GDP, so if it was passed by Congress as it stands it would certainly have a significant impact on GDP growth in 2012, which we currently expect to be only 2 per cent. The big question, however, is whether an otherwise hopelessly split Congress can agree to pass any of the multitude of different measures the bill includes. In our view the chances of any agreement at all are probably only 50/50 at most so, for the time being, we are not revising our GDP forecast higher." Paul Ashworth, Capital Economics

"Our first take on Obama's jobs plan is that it is substantially larger than what we had earlier been assuming. Our forecast for 2012 U.S. GDP growth of just under 2 per cent had assumed the adoption of a plan that would inject an amount of stimulus roughly equal to what was scheduled to expire at the end of the year, in effect, merely preventing a fiscal drag of about 1.9 per cent of GDP. Instead, the president is asking Congress to inject $447-billion in stimulus in the form of extended and enhanced payrolls tax cuts (including a corporate exemption for new hires on up to $5-million in wages) infrastructure spending, unemployment benefit reforms, aid to states, worth roughly 2.9 per cent of GDP. After deducting the elements that were already in place and are merely being continued, this plan might end up providing additional economic momentum of 1 per cent of GDP (some of which might dribble into 2013 due to lags in getting infrastructure funds spent). Tax cuts represent more than half ($247-billion) of the plan, clearly attempting to appeal to Republicans that are hostile to spending measures, but potentially a bit less effective in driving growth than spending (since some of the tax reductions will be saved rather than spent)." Avery Shenfeld, CIBC World Markets

"It's been a long time since we could talk about an upside risk to the economic outlook, but that's what the Obama jobs plan portends ... If Congress agrees to most of the President's Jobs Act, and that's a big if, we would likely raise our 2012 economic growth estimate north of 3 per cent. The fiscal stimulus would imply less need for the Fed to do more on the monetary side." Sal Guatieri, BMO Nesbitt Burns

"In terms of the total impact of the bill on real GDP and job growth, if the bill is passed in its current form it could provide a boost of up to 1.3 percentage points to economic growth in 2012 and generate around 1.3 million in additional jobs ... Our forecast, which currently calls for 2.2-per-cent growth on a Q4/Q4 basis in 2012 would be improved to 3 per cent. However, the lift to economic jobs and employment growth would be temporary, as the expiration of the new fiscal stimulus would then act as a greater drag on economic growth in 2013 and beyond." James Marple, Toronto-Dominion Bank

ECB's Stark resigns Jürgen Stark, the European Central Bank's chief economist and a long-time member of its executive board and governing council, is quitting his post, a move that underscores Europe's troubles and sent jitters through markets today.

. The ECB said today Mr. Stark is leaving for "personal reasons," though reports suggest he's opting out over a dispute related to the central bank's bond-buying program, which has been controversial.

Mr. Stark, who has held his post since mid-2006, is the second German official to leave the bank, following in the footsteps of Axel Weber.

The central bank has been buying bonds to help bolster Italy and Spain, and protect them from the debt crisis that has spread across the 17-member euro zone. Mr. Stark has objected to it.

Mr. Stark's resignation highlights the divisions in Europe, whose leaders have been unable to get a handle on their crisis. His move is certain to stir the pot up even more.

Whither Greece Canada's Finance minister Jim Flaherty today raised the spectre of Greece leaving the euro zone unless it pushes forward with its severe and highly unpopular austerity program, even though the cutbacks seem to be pushing the country deeper into recession.

In an interview with the Canadian media in Marseilles, where Group of Seven finance ministers are meeting against a backdrop of deteriorating growth in the Western world, Mr. Flaherty urged the European countries to stick with their deficit-crunching efforts, The Globe and Mail's Eric Reguly reports.

"It's necessary for the Greek government to stay the course," he said. "You know, the alternative is probably that they'd leave the euro. Given those two choices, I expect that the Greek government would want to continue with their fiscal consolidation plans."

G7 meets Markets appear to be hoping for some sort of co-ordinated action from the meeting of G7 finance ministers and central bankers in Marseilles. But don't expect too much.

This is a divided group. While the United States opts to spend, for example, others at the table have no plans to take their eye off deficit-reduction. And on the key question of Europe's debt troubles, there's not much this group can do, though Canada's Finance Minister Jim Flaherty said today he thinks the euro zone's bailout fund could be heftier.

"Speculation continues to rise over the weekend's G7 finance ministers and central banker meetings that begin today," said Scotia Capital senior currency strategist Camilla Sutton.

"Rumours cover the spectrum between a co-ordinated loosening of monetary policy and support for yen intervention. Considering the timing, just one day after the ECB, BoE and Chair Bernanke's speech, we would be surprised to see a coordinated attempt to loosen policy."

Lululemon's bottom line Lululemon Athletica Inc. continues to pump out profit and revenue growth, The Globe and Mail's Marina Strauss reports today.

The yoga wear retailer said today its second-quarter profit climbed to $38.4-million (U.S.) or 27 cents a share, basic, from $21.7-million or 15 cents a year earlier. Revenue climbed 39 per cent to $212.3-million.

Chief executive officer Christine Day said the business remains "very healthy," but she flagged the "current economic environment," saying she believes the company's in a strong position amid the turmoil.

Lululemon said it expects revenue of $225-million to $230-million, on a comparable-store basis, in the third quarter, and diluted earnings per share of 22 cents to 24 cents.

Scotiabank boosts China presence Canada's Bank of Nova Scotia is oomphing up in China, with a $719-million deal for 19.99 per cent of Bank of Guangzhou.

As Streetwise columnist Tim Kiladze notes today, given it's hefty presence in Latin America, it's easy to overlook the bank's mandate to boost its China footprint.

While its China operations are often left out of conversations, they're the biggest of any Canadian bank, according to Scotia's head of international banking.

Analysts up RIM targets Some analysts are taking a more optimistic view of Research In Motion Ltd. stock, citing a "decent start" for RIM's new BlackBerry OS 7 smart phones.

UBS Securities has boosted its 12-month price target on the stock to $32 (U.S.) from $30, while National Bank Financial has upped its by $10, to $35 from $25.

"We expect [third-quarter]guidance to be decent as RIM continues to ship new BB 7s into the channel ahead of the holiday season," National Bank said. It also cited the company's patents.

RIM stock has been under pressure for months amid a heated battle with Apple Inc. and its popular iPhone and Google Inc. , with its Android operating system. RIM reports results next week.

UBS analysts Phillip Huang, Amitabh Passi and Mitchell Revsine said their survey of stores in the United States and Canada indicate a good launch for the 7s, notably the Bold model, which could lead to higher than estimated sales.

"We retain our neutral rating on RIMM for now as we continue to lack conviction in RIMM's longer-term competitive advantage in an increasingly competitive landscape with platform competitors Google (Android) and Apple (iOS) having significant momentum, and Microsoft (with Nokia) to soon join in the fray," UBS said, referring to RIM by its U.S. stock symbol.

"RIMM's two main pillars of growth – international expansion and enterprise are increasingly under attack and we continue to believe the status quo will likely be only good enough to just keep RIMM in the game, but will not meaningfully slow its competitors ... In the near-term, however, we have seen encouraging signs with RIMM's new BlackBerry 7.0 products launching a couple of weeks ahead of our expectations, and our store checks, especially in the U.S. and Canada, pointing to decent traction for these products, especially the 9900/9930 Bold."

Pierre Ferragu, senior research analyst at Sanford C. Bernstein in London, said RIM "remains challenged" and has an "underperform" rating. He cited eroding U.S. market share as a "leading indicator," and signs of weakness in Europe.

"In the shorter term, we nevertheless see a good chance for the stock to outperform, as the enthusiastic news flow about the next generation of QNX products expected for 2012 increases and the ongoing product refresh boosts the company's guidance for the December quarter."

China inflation dips It's getting a bit cooler in China, allowing Beijing to ease its fight against inflation somewhat.

Annual inflation dipped in August to 6.2 per cent from 6.5 per cent in July. That's obviously still hot, but it is easing and is expected to continue to ease. What might be more worrying are the other indicators from the engine of the world's growth.

"In fact, the activity data released today underline that the economy is relatively weak," said Mark Williams, chief Asia economist at Capital Economics in London.

"The continued slowdown in real retail spending is the most striking development. Nominal growth in retail sales dropped from 17.2 per cent to 17 per cent. In real terms (using the retail price index to deflate the nominal data), growth was just 11 per cent. Retail spending hasn't been this slow since 2004."

Mr. Williams said the inflation numbers are welcome, though he expects no change in official policy until it's down by about another percentage point.

"But policy makers may be less demanding behind the scenes in their efforts to constrain lending, particularly if export demand weakens – as seems likely," he said. "Unfortunately, the bigger picture is that China has not yet had any success in stimulating consumption, and will still have to rely on stronger investment to offset any slowdown in export demand."

From today's Report on Business

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About the Author
Report on Business News Editor

Michael Babad is a Report on Business editor and co-author of three business books. He has been with Report on Business for several years, and has also been a reporter and editor at The Toronto Star, The Financial Post and United Press International. His articles have appeared in major newspapers around the world. More

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