Outlook subdued for jobs market
Investors eyeing Friday's U.S. payroll data will be looking for signs, even small ones, that the modest economic recovery remains intact.
There likely needs to be a significantly improved jobs outlook to propel the stock market markedly higher and that is thought to be still some time away. Currently, the weak jobs market is holding back the housing, retail, banking and automotive sectors.
The expectations for Friday's non-farm payrolls data are subdued. Cash-strapped state governments are laying off workers, while the construction and retail sectors remain weak, economists say.
The U.S. unemployment rate is forecast to have increased to 9.6 per cent in July compared with 9.5 per cent in June, according to a survey of economists by Bloomberg.
The economy is expected to have shed 65,000 jobs in July, compared with 125,000 in June. However, the total non-farm payrolls in July will likely include a loss of about 150,000 census workers, who were only hired by the government on a temporary basis.
On the plus side, the private sector is picking up some of the slack. Economists forecast 90,000 jobs were created during July, compared with 83,000 in June.
Private sector hiring is critical. "The private sector needs to create about 120,000 jobs a month on a sustained basis [over two years or so] to reduce the unemployment rate," said Sal Guatieri, a senior economist with BMO Nesbitt Burns Inc. "We're almost there, but not quite."
An increase in jobs would provide the income and confidence needed for consumers to buy big-ticket items like houses and cars, Mr. Guatieri said. "The deeper we get into a recovery, the more critical a jobs recovery comes just to sustain the growth," he said. "The consumer has to take the baton from the government's stimulus programs and business spending."
But there are reasons to anticipate an improving jobs market. "The U.S. Conference Board's Employment Trends Index - which aggregates eight leading labour-market indicators - increased again in June for the eleventh consecutive month, pointing to further improvement in the labour market in the months ahead," said Derek Holt and Gorica Djeric, economists with Scotia Capital Inc. in a report to clients.
Generally investors remain cautious about the prospects of growth in the U.S., said portfolio manager David Baskin, president of Baskin Financial Services Inc., a boutique investment counselling firm. "We don't think the [U.S. stock] market is expensive. .... If people were feeling buoyant about the U.S. economy, the S&P would be much higher."
For Canadians the rally in the loonie to just below par with the greenback removes much of the currency risk in buying U.S. stocks, Mr. Baskin said. "We are looking for things you can't get in Canada." Those include companies in sectors such as technology, health care and the multinational brand managers such as Johnson & Johnson and Procter & Gamble Co., he said.
The risk of a rising Canadian dollar against the U.S. dollar has kept him out of the U.S. market since 2007. "We are starting from zero," he said. "We could be 10 per cent by the winter or maybe even 20 per cent."
For now his investment strategy does not depend on an improved U.S. jobs picture. "It's too big of a hole," he said, referring to the huge number of unemployed.
