Latest good news from Canada: Jobless rate increase expected (Globe and Mail)

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POSTED AT 2:53 PM EDT Thursday, July 05

Jobless rate increase expected

Globe and Mail Update and Reuters
News Agency

Canada's jobless rate is likely to inch
up in June for the first time in three
months, analysts said on Thursday,
and this could be a major factor when
the Bank of Canada decides its next
interest-rate move later this month.

In the U.S., economists expect a slight
increase in unemployment figures
despite a quarter-point interest rate cut
last month by the Federal Reserve

The U.S. and Canada will release
June's employment numbers jobs
Friday. The jobs report may have an
impact on what Canada's central bank
will do when it announces its stance on interest rates on July 17, which in turn could
determine the direction the nation's consumer confidence heads this summer.

In the first quarter of 2001, Canada experienced stronger-than-expected growth thanks to
buoyant consumer spending in the face of sluggish economic performance.

Analysts polled by Reuters were divided on whether the Bank of Canada will follow suit
with the U.S. Federal Reserve Board and cut rates by a relatively minor 25 basis points, or
give the economy a little more kick with a more substantial rate cut.

Mark Chandler, senior economist at Goldman Sachs, said employment growth recently has
been running at less than a third of the pace seen over the last three years.

"Consumption has held up very well in the first quarter, and there's still a little bit of residual
strength there. But, the consumer can't continue to do well unless there's underlying labor
and income growth," he said.

"As a result, unless employment turns around, I think the bank should be thinking about
keeping its foot on the [credit-easing] accelerator."

The Bank of Canada has lowered interest rates by 1.25 basis points to 4.75 per cent so far
this year, running at half the pace of the U.S. Federal Reserve in its rate-chopping program,
in a series of pre-emptive strikes to keep the economy from skidding into recession.

Statistics Canada will release the employment report at 7 a.m. EDT on Friday, while the
U.S. report will be released prior to the stock markets open.

The analysts polled expect the Canadian unemployment rate to inch up 0.1 per cent in June
to 7.1 per cent. The jobless rate has held steady at 7.0 per cent since March.

In the U.S., analysts believe the unemployment rate will rise 0.01 per cent to 4.5 per cent
from last month's 4.4 per cent. Non-farm payrolls are expected to drop $50,000 (U.S.),
while hourly earnings increases are expected to remain steady at 0.3 per cent, same as last

On average, economists expect 3,400 new jobs in June, down from an increase of 10,000
in May. Expectations for June range from a decline of 5,000 jobs to an increase of 10,300

Canada's economy has been healthier than that of the United States during the first half of
the year, and some economists believe the Bank of Canada won't be too concerned with a
slight uptick on the jobless front.

"For the bank, it means that the economy is growing below its potential growth rate," said
Sal Guatieri, senior economist at Bank of Montreal. "But given that the bank is
forward-looking, and expecting growth to rebound in the second half of this year and into
next year, it probably won't be too fussed by the soft employment growth.

"In that light, there's probably little need to cut interest rates further."

With a majority of Canada's manufacturing sector heavily geared toward sales to the United
States, that sector will likely have lost more jobs in June as the slowdown in the United
States was much more bleak than the domestic one.

But the services industry, including construction and retail, is expected to have stayed strong
in June.

Analysts were concerned with figures in Canada's help-wanted index, released on
Thursday, saying they could be a sign of where the economy is headed.

The index, which measures companies' intentions to hire new workers, fell by 1.8 per cent
in June to a level of 161 from 164 in May, Statistics Canada said. The downward trend,
began in November 2000, but the unemployment rate has largely been steady.
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2001-7-5 -04:00
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