Best thing for Canadian economy would be job growth in U.S.

Canada’s jobs numbers on Friday are expected to provide some insight into the future direction of the economy as concerns about a double-dip recession persist, but it’s what happens in the U.S. that will be most telling.

OTTAWA — Canada’s jobs numbers on Friday are expected to provide some insight into the future direction of the economy as concerns about a double-dip recession persist, but it’s what happens in the U.S. that will be most telling.

Economists do not expect any major fanfare from the July numbers, with moderate employment pick-up in the all-important private sector on both sides of the border.

Canada’s data will do little to change the picture of an economy that has essentially recovered the jobs that vanished during the recession.

In the U.S., however, a surprise expansion — not expected but not altogether discounted either — could provide just the elixir an anaemic recovery needs, say analysts.

“The single biggest risk to the Canadian recovery is what happens in the United States,” says Craig Alexander, chief economist with TD Bank.

“One of the key ingredients to the weakness in the U.S. is the state of labour markets, so if we had a positive surprise on the payrolls it would have a very strong impact on financial markets because it would call into question the growing negative sentiment.”

The consensus is for modest increases — 90,000 in the U.S. and about 15,000 in Canada. The U.S. number is the estimate for private payrolls and does not include an expected 150,000 writedown in temporary census jobs that analysts say markets will ignore.

Economists say markets will interpret the news from both countries differently.

A 15,000 pick-up in Canada, or even a flat reading, will do nothing to undercut the recovery that has added 403,000 jobs since last July — virtually all that were lost during the recession.

Just meeting expectations in the larger U.S. market, however, will be regarded as confirmation of a sluggish recovery.

It would still leave employment about eight million shy of where it stood before the downturn, and is about 30,000 short of what is needed just to keep up with labour market expansion. It could also result in the unemployment rate being pushed up one-tenth of a point to 9.6 per cent, rather than down.

Scotiabank economists note that there is some reason to hope the U.S., after underperforming all year, can finally surprise on the upside in July.

The ADP employment report Wednesday, a precursor of the non-farm payroll data Friday, showed a hiring boost in July that while no barn-burner, was still above expectations.

As well, the Institute of Supply Management surprised analysts by showing modest growth in the U.S. service sector, when a decline had been anticipated.

There was also good news in Canada. A Bank of Montreal study suggested that 80 per cent of business owners were investing in their operations, and expressing confidence in the recovery.

Stock markets in Toronto and New York closed higher Wednesday on the encouraging indicators, while the Canadian dollar rose 0.6 of a cent to 98.27 cents US.

But it is U.S. employment that has the potential to be a game-changer to the prospects in both economies, say analysts. Not only will it buoy markets and confidence, but stronger job creation would bolster consumer spending, which in turn will support Canadian exporters.

“We need the (U.S.) unemployment rate to come down for consumers to become more confident and spend more,” says Sal Guatieri, an economist with BMO Capital Markets.

Scotiabank economists Derek Holt and Gorica Djeric said in a note they were hopeful that the ADP report, which not only beat expectations for July, but also revised payrolls higher for both June and May, augered well for the main number Friday.

They added that General Motors likely boosted employment by 15,000 since some of its plants did not shut down in July.

Scotiabank has been bullish on U.S. employment all year, having predicted that two million workers will be added in 2010, a number that appears out of reach with half a year already in the books.

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