The US Non-Farm Payroll Report is usually good for a boost in volatility, and such was again the case Friday. New jobs created were reported to be 243K, well exceeding the anticipated 150K, and better than the 203K added in December. In addition the unemployment rate was reduced to 8.3%. Stock traders responded, taking the US Dow up over 100 points.
The US Treasuries sold off, sending the yield up to 1.94% on the ten year and 3.15% on the long bond. This is a big daily move, and compares to yields of 1.82% and 3.00% earlier in the day. If the NFP numbers continue this strong, the market may move forward the anticipated date when Fed Chairman Bernanke increases interest rates.
Washington and its acolytes in the US news media will be touting this number as evidence of the Obama administration's success. The details, however, belie this conclusion. Those categorized as unemployed, are those in the work force who are actually looking for a job. During January, an unprecedented 1.2 million of the formerly employed gave iup, and stopped looking for a job. This takes the civilian labor force down to 63.7%, a thirty year low, hardly an indicator of a flourishing economy.
Other reports followed. There was a 50K increase in manufacturing payrolls despite a less than expected 1.1% increase of US factory orders. The US ISM estimate of the service sector came in at 56.8 better than last month's 53. Coming in a month when thousands of bankers lost their jobs, there are some who challenge the accuracy of the numbers. As ZeroHedge said:
We leave it up to readers to estimate the credibility of this report....But who cares: it is an election year and the propaganda machine is on in full force.
Last week in Canada the fundamental news was not bullish. Earlier, the m/m GDP showed a small contraction, down 0.1%. Friday the employment increase was only 2.3K and the unemployment rate went up to 7.6%, a nine month high. Canadian youth unemployment climbed to 14.5%.
Quebec, the second most populace province, had been hard hit, losing 70K jobs in the last quarter, taking the unemployment rate up to 8.7%. Part of the trouble is the high labor costs, C$ 25/30 per hour in Quebec. Business is moving away. Shell Canada closed their refinery in Montreal, and Electrolux AB (ELUXF.PK), the Swedish appliance maker, has laid off 1300 employees, moving their operations to Memphis, Tennessee, where labor costs are lower.
Despite the poor economic news, the Canadian Dollar continues to firm versus the USD. From a low 1.0523 versus the USD on November 20th, the C$ has gone to a premium to the Greenback, and is now trading at about 99.50. We question if the signs of US recovery are more bullish on the C$ than the USD. Perhaps there are other reasons for the C$ strength, but if it continues the Quebeckers will lose some more of their jobs to a cheaper labor market in the business-friendly US South.
We are inclined to look for a spot to enter the USDCAD on the long side. Perhaps a lot of the good economic news we are getting in the US is political propaganda, but it will not stop until this fall.
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Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.
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