All eyes on North American jobs figures in busy data week; economists downbeat

TORONTO - North American traders will return from patriotic holidays to a week heavy with economic data that will paint a clearer picture of how the economy is faring, culminating in Friday's release of June jobs figures.

Investors will take in Canadian data on industrial products and raw materials, followed by building permits and the new home price index. Reports from south of the border include factory orders, the non-manufacturing ISM survey, wholesale inventories, and consumer credit.

But the most telling reports come at the end of the week, when both the U.S. and Canada are slated to release employment figures for June. The outlook for job prospects both north and south of the border isn't rosy.

Economists expect jobs gains in the U.S. to be soft on the back of weak second-quarter economic data. The consensus call is for 90,000 net new jobs, up from the 54,000 jobs created in May but not enough to bring the unemployment rate down from the current 9.1. per cent.

Weekly new unemployment claims in the U.S. have stayed above 400,000 for 12 straight weeks, a sign that companies aren't hiring at a rate that can sustain overall job growth. The slowdown in hiring has caused concerns that the U.S. economy will take longer than expected to return to health.

"In the U.S., the celebrations on the Fourth (of July) likely won't extend good cheer through Friday, when a soft jobs report will underscore concerns that the economy is simply moving too slowly to get Americans back to work," said Avery Shenfeld, chief economist at CIBC World Markets.

In Canada, economists, on average, expect the economy churned out 15,000 net new jobs in June, down from 22,000 in May. That would effectively push the unemployment rate up a notch to 7.5 per cent from the current 7.4 per cent.

The Canadian jobs market is poised for a correction as the economy continued to churn out solid jobs figures in the past few months despite economic data suggesting somewhat muted growth. Temporary Census jobs could distort figures to make it appear higher, said Shenfeld, whose bank is calling for a below consensus 5,000 net new jobs.

"Even a June stall, however, would still leave a lot of private sector job creation for the quarter as a whole, a sign that Canadian business leaders were still hopeful about what comes next," he added.

A weak jobs report could push down the Canadian dollar, which saw the biggest single day gain in nearly seven months on Wednesday to close the week up 2.36 cents against the U.S. dollar.

A Statistics Canada report showed inflation grew more than expected in May, suggesting the Bank of Canada might have to hike interest rates earlier than expected. Another report from the federal agency showed real gross domestic product growth was unchanged in May, slightly better than the 0.1 per cent decline economists had expected.

Francis Fong, an economist at TD Economics, said the flat GDP figures set the stage for slower growth in the second quarter.

"Consumer spending has pulled back a lot more than people expected," he said.

As well, the U.S. has hit a soft patch and has had a weaker past few months than economists expected — which will weigh on Canadian growth.

"We're expecting consumer spending to rebound a little bit for the remainder of this year and same with the U.S., which should help our export sector," he said.

"We've definitely hit a soft patch. It's not indicative of where we're going to go in the coming quarters, but it certainly does have a small impact at least."

Canadian jobs data is unlikely to make much of a dent on the Toronto Stock Exchange, where investors remain focused on global economic concerns including the ongoing debt issues in Europe and the U.S., said Gary Aitken, director of equity research at Bissett Investment Management.

Markets were buoyed last week by news that the Greek parliament had passed controversial austerity bills necessary for that country's international creditors to release euro12 billion (US$17 billion) worth of bailout funds from last year's financial rescue package.

A Greek debt default could have caused havoc in financial markets around the world.

The TSX ended the week 391.98 points higher.

But traders aren't expected to cling to that positive mood for long as a number of risks, most notably a slowdown in the U.S. recovery, continue to weigh on markets.

Another set of indicators that investors should focus on this week, which kicks off the third quarter, will come from guidance revisions from companies gearing up to report second-quarter earnings, said John Kurgan, a senior market strategist with Lind-Waldock.

The number of downgrades and revisions reported by both U.S. and Canadian companies will send a signal about where the second-quarter earnings season is headed, he said.

"The only thing I would look toward is those type of earnings estimates, whether some things had been downgraded or not, if they're not, that would give me a little bit of optimism going into the following week or two after that."

Stocks are still below the 2011 highs they reached in late April, when a number of factors caused investor jitters, including economic data indicating a slowdown in the U.S. economy, a resurgence of worry over the European debt situation and the fallout from Japan's earthquake and tsunami.

Since then investors have been debating whether or not the slowdown would be a short-term blip before the recovery gets back on track.

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