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U.S. labour market fires up, jobless rate at lowest since 2008

These are stories Report on Business is following Friday, May 3, 2013.

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U.S. labour market perks up
The troubled U.S. jobs market is picking up much more speed than expected.

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The U.S. economy churned out 165,000 jobs in April, the U.S. Labor Department said today, while the unemployment rate dipped to 7.5 per cent from 7.6 per cent.

Not only that, but there were hefty revisions to months past.

April's job creation was better than the 140,00 to 150,000 expected, and markets surged on the news.

But of particular note were the revisions to the earlier readings of March and February. The original March number of 88,000, which had been a huge disappointment, was revised to show 138,000 jobs created. More spectacular was the revision to February's measure - 332,000 compared to the original 268,000 - showing the best gain in three years.

Since January, the Labor Department said, the ranks of the unemployed have declined by 673,000.

The jobless rate, down 0.4 of a percentage point since the beginning of the year, now stands at its lowest since late 2008.

"The better than expected 165,000 increase in U.S. non-farm payrolls in April, combined with the 114,000 upward revision to the gains in the preceding two months, will go a long way towards soothing fears of another spring slowdown," said chief U.S. economist Paul Ashworth of Capital Economics.

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Last month's increase was driven entirely by the private sector as governments continue to hold the line.

"Over all, a strong set of numbers which will reassure markets on the U.S. economy is not as weak as it may have seemed given some of the earlier data, although it may not be strong enough on its own to see renewed talk of tapering QE," said Andrew Grantham of CIBC World Markets.

He was referring to quantitative easing, the Federal Reserve's bond-buying program aimed at juicing the economy. Just this week, the U.S. central bank left the door open to either expanding the program, or allowing it to die out, depending on the economic outlook.

The Fed has also pledged to hold its benchmark interest rate at its historic low near zero until unemployment eases to at least 6.5 per cent. While today's report is stronger than expected, there's still a long way to go for the United States.

Some 11.7 million people still can't find work, and the broader reading that includes workers who've given up hope, and those in part-time jobs who would prefer full-time, inched up to 13.9 per cent from 13.8 per cent.

There are now 2.3 "marginally attached" people, so named because they want work but aren't counted because they hadn't looked for a job in the month before the labour force survey, most because of school or family responsibilities. But among those, 835,000 are deemed "discouraged," meaning they've given up trying to find jobs.

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And the number of those working part-time, but who would prefer full-time, is now 7.9 million.

"The pace of hiring encouragingly picked up in April even with the sizable upward revision to the gain in March," said assistant chief economist Paul Ferley of Royal Bank of Canada.

"However, the April increase is down from an average monthly rise of 207,000 over the previous six months," he added in a research note.

"This does flag some increased caution by firms in terms of taking on new workers likely responding to the uncertainty surrounding the forced government expenditure cuts, i.e., sequestration, that kicked in March 1. Our expectation is that this factor will contribute to a slowing in [second-quarter] GDP growth relative to the [first-quarter] gain of 2.5 per cent. Though this restraint is expected to ease over the second half of this year, the Fed is expected to keep conditions highly accommodative to assure that any downward pressure proves short-lived."

Dollar dips
The Canadian dollar dipped early today, at least partly on uncertainty over the next governor of the Bank of Canada, though there were other issues playing out in currency markets.

The initial dip was because many currency players don't know all that much about Stephen Poloz's views on financial stability and monetary policy, said chief currency strategist Camilla Sutton of Bank of Nova Scotia.

Such uncertainty can lead to a weaker currency.

Some observers speculate that Mr. Poloz may be seen in some quarters as leaning toward a lower dollar to help Canadian exporters, given his long stint as chief of Export Development Canada.

But it would be a mistake to suggest that, they add.

"The appointment of an 'outside' candidate will likely raise some uncertainty as to the future course of monetary policy," said RBC's Mr. Ferley.

"There may also be a tendency to assume that someone coming from an organization such as the EDC, which is focused on promoting external trade, will slant monetary policy in a similar direction particularly with respect to the exchange rate," he said in a research note.

"However, this would do a disservice to Poloz's early career at the central bank where the priority is to set monetary policy to achieve an appropriate rate of inflation. Our expectation is that monetary policy under Poloz will remain focused on strengthening growth to a rate the puts greater downward pressure on the unemployment rate with the objective of maintaining inflation at the 2-per-cent midrange target."

His comments came after Finance Minister Jim Flaherty announced Mr. Poloz as his choice to replace central bank Governor Mark Carney, who is heading to the Bank of England, over Tiff Macklem, the current senior deputy who had been seen as the front runner.

Air Canada posts loss
Air Canada today confirmed its earlier report of a tough first quarter, as demand for higher fare seats waned, The Globe and Mail's Guy Dixon reports/

Having prereleased its quarterly results on April 22, in order to pursue a new form of debt for Canadian airlines known as enhanced equipment trust certificates  to purchase new Boeing 777 jets, the airline confirmed that the first quarter fell below expectations.

The results were better than last year year, however. Air Canada lost $260-million in the quarter, or 95 cent a share, compared with a loss of $274-million, 99 cents a share in the same period a year ago.

The winter months can typically be tough, with higher costs associated with delays and deicing due to the weather. Yet signs of revenue pressure are a concern, say analysts.

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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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