Job creation, confidence on the rise in US
Canadians still unsure about their neighbor’s recovery
corporate tax cuts
manufacturing in Canada
RBC Royal Bank
OTTAWA—For the first time in two years, the US could top Canada in job creation.
New data from December that’s being released tomorrow will likely reveal a role reversal, with the US posting greater job creation numbers.
Economists expect 20,000 new jobs were created in Canada during December 2010.
In the US, December’s numbers could top 300,000, though most experts are predicting about 175,000.
Early numbers from the US ADP employment survey suggest the country added a whopping 297,000 jobs in December while some optimists say recent indicators in manufacturing and exports support that figure.
And the most recent numbers from the US Labour Department show fewer than 425,000 Americans applied for unemployment benefits, a threshold that signals modest job growth.
“It does look like the economy is gaining momentum, and the labour market, which has been the recovery’s caboose, is starting to catch up,” said Zach Pandl, an economist at Nomura Securities.
Some experts say Canadians may have to get used to coming out second best this year (and no, this is not a reference to the World Junior Hockey fiasco).
“We’ve front-loaded most of our job gains early on in the cycle and now we’re off cycle compared to the US,” says Scotiabank economist Derek Holt.
The recession hit the US earlier than Canada, so their labour market is still seven million jobs short of pre-slump peaks.
Canada’s unemployment rate is about 1.5 points higher than before the slump.
Economists predict Canada’s unemployment rate will stay in the mid-seven per cent range this year, with modest job growth of 15,000-20,000 a month.
The Bank of Canada‘s current forecast is for a 2.3 per cent gain in the country’s GDP.
Canada’s newly-minted junior finance minister Ted Menzies said corporate tax cuts that went into effect on Jan. 1 will help boost the Canadian economy.
Another factor that will help, according to Bank of Montreal economist Jennifer Lee, is the brightening prospects in the US.
A weak link in the Canadian recovery throughout last year has been in the manufacturing sector, which exports to the US. Growing demand there will be good news for producers north of the border.
“Stronger results in the US will be reflected later in Canadian economic growth in general,” Lee said.
The US economy is predicted to grow in the three per cent range, stirring enthusiasm that the US economy is finally starting to gain traction.
That optimism was reflected in RBC’s January Consumer Outlook Index, which found US consumer confidence hovering near post-recession peaks.
The RBC Consumer Outlook Jobs sub-index, which measures job confidence, edged up to 52.1 compared to December’s 51.8 and last year’s 42.0.
The index also measured pessimism about local economies at the lowest level in more than a year. Fewer than half of respondents rated their local economy as weak, down from 51 per cent last month.
There was, however, some lingering pessimism.
Americans were less confident about current conditions, investment and expectations compared to the previous month. Nearly half said the nation will continue struggling along in much the same condition as in the recent past.
“The consumer is right to be cautious,” said RBC Capital Markets Chief US economist Tom Porcelli.
“But even with the modest pullback, we are still seeing a better backdrop of consumer confidence as we start the New Year,” he said.
Canada is also seeing a “reserved” optimism, according to a recent poll by Toronto-based think-tank, Economic Club of Canada, and polling firm POLLARA.
Almost 30 per cent of respondents said the economy is in a state of moderate growth heading into 2011, compared to just 17 per cent a year ago.
The number of Canadians concerned about a severe recession also dropped from 17 per cent in December 2009 to less than 10 per cent in December 2010.
But fewer respondents said the economy will improve in the new year, compared to 54 per cent who thought it would in December 2009.
“Canadians were feeling overly bullish on economic recovery this time last year,” said Michael Marzolini, Chairman of POLLARA.
“But clearly, these lofty expectations in Canada and around the world have not yet been met, and Canadians are now more measured in their feelings about the economy,” he said.
Respondents were especially weary about other countries’ economies.
Only 19 per cent said the US economy will improve this year while 42 per cent expect it to actually get worse.
Even fewer respondents —43 per cent— expected the global economy to worsen with just 20 per cent who said it’ll get better.