OTTAWA — One of the strongest U.S. employment reports in almost five years is raising expectations for Canada’s economy, particularly the auto sector in Ontario.
Robust U.S. job gains in February were almost as good news north of the border for what they said about the sustainability of the U.S. recovery, and the flow-through impact in Canada.
The private-sector job increase of 222,000 was the second highest monthly gain in almost five years, and was on top of revisions that added 58,000 jobs to the previously reported total for the prior two months.
After accounting for government layoffs, the U.S. gained 192,000 jobs as the unemployment rate fell to 8.9 per cent, the lowest in almost two years.
Still, those numbers weren’t good enough for some, who noted that February’s wish fulfillment merely makes up for January’s disappointment.
“It’s a classic case of it didn’t quite live up to the whisper expectations,” said economist Douglas Porter of BMO Capital Markets. “But that shouldn’t detract from the fact it was a pretty solid report.”
More importantly, it was the first strong month of private sector jobs in almost a year, and it is in line, rather than being an outlier, to more solid indicators in manufacturing, exports and retail sales.
Even a pessimistic view from CIBC economist Krishen Rangasamy, who referred to the gain as “another false start,” concluded that the U.S. economy is clearly picking up steam and will most likely “finally spring into action in the coming months.”
In Canada, the February jobs data will be released next Friday. Analysts are expecting an addition of 22,000 jobs — a modest total given that Statistics Canada reported 69,000 jobs were created in January.
The importance of a jobs recovery to the U.S. cannot be overstated, since consumers account for about 70 per cent of the economy, say analysts. Higher employment puts more money in pockets for consumers to spend, including on imported goods.
“Virtually all of our export industries depend centrally on the U.S. market: not just autos, but also housing materials, machinery, and resources,” Canadian Auto Workers union economist Jim Stanford said.
“When the U.S. economy sneezes, we catch cold. And when the U.S. economy springs back to life, we ride on its coattails.”
With about three-quarters of all Canadian exports heading across the border, improvement in the U.S. directly translates into more output and jobs in Canada, says Royal Bank assistant chief economist Paul Ferley.
The strong export results posted by Canada in December showed U.S. demand was already along the road to mending. The jobs data Friday offers encouragement to the auto sector, which was left out of the late-year exports surge.
“With these numbers showing rising employment numbers in the U.S., there’s the prospect that U.S. households start buying autos, and to the extent they are made in Canada, our economy could get a further lift,” he said.
Ferley, whose bank is among the most bullish on the Canadian economy this year, said the strengthening conditions in the U.S. validate the assumptions.
He estimated a percentage point expansion in the U.S. generates an increase about half the size in Canada.
The Bank of Canada appears not to agree. In its latest outlook, the central bank cautioned the strong Canadian dollar would prevent firms from taking full advantage.
The early returns don’t back up the pessimism, however. Exports in December rose 9.7 per cent, and 10.8 per cent to the U.S., despite the dollar trading near parity.
Canadian Manufacturers and Exporters president Jayson Myers believes the strong dollar is a factor, but not as important as strong demand.
Canada’s economy appears to have grown in tandem with the U.S. in recent months. Last week, Statistics Canada reported the economy expanded by 3.3 per cent in the final quarter of 2010, half a point more than the U.S.
The question, said Ferley, is whether the momentum can be sustained. Besides the well-known list of risks to the global recovery, the past few months has seen the addition of political unrest in the Middle East and spiking oil prices.
“It’s a main risk right now. The closer these oil prices move toward $200 a barrel versus $100, the risks start increasing that this could become a significant hit to the U.S. economy,” he said.