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The U.S. reported impressive jobs creation numbers for April, but there's a long way to go to make up for the 8 million positions lost in the financial crisis. (Mark Lennihan/Associated Press)
The U.S. reported impressive jobs creation numbers for April, but there's a long way to go to make up for the 8 million positions lost in the financial crisis. (Mark Lennihan/Associated Press)

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Don't shed 'too many tears' over jobless rate? Seriously? Add to ...

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Should we not cry as much over jobless rate? At last count, almost 1.45 million Canadians were unemployed. And I'll bet not one of them can find a silver lining in the fact that they can't find work. And I'll bet they are shedding many, many tears.

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I was troubled Friday when I read a research note by one of Canada's leading economists, pointing ahead to this week's jobs report and suggesting that we "don't cry too many tears" if it takes "a bit longer" for the jobless rate to drop markedly from its uncomfortably high level of 7.8 per cent. To be fair, he was being provocative, and in no way was suggesting he wants to see unemployment remain elevated.

Here's what Avery Shenfeld of CIBC World Markets wrote:

"Canada's job figures will be out this coming Friday, and in one interesting twist, there would be reason to not be too disappointed if the unemployment rate fails to fall from its current 7.8-per-cent perch. Of course, we all want the country to see strong economic growth that puts more Canadians to work. But the recent stickiness of the jobless rate, despite what looks to have been an impressive 4-per-cent pace to economic growth in the first quarter, carries a silver lining."

I can't see any silver lining in the fact that 567,900 men, 467,000 women, and 412,700 young people can't find work, an ugly legacy of the financial crisis and recession.

Just to be clear, Mr. Shenfeld is not for a moment suggesting he doesn't want more people back at work. He's a respected economist, and rightly so. And of course he wants the jobless rate to come down, and is, rather, looking at this with a different take and an economist's analysis.

Indeed, Mr. Shenfeld told me today that he was being creative and edgy in how he wrote the note, and that, indeed, full employment is the goal.

"It would be nicer if we got fast growth getting people back to work, rather than slow growth getting people back to work as it would be a sign that productivity is accelerating," Mr. Shenfeld said in the interview. "Full employment is an aim in itself, but output-per-worker is what determines the standard of living for those fully employed workers."

But his rationale on this one might fall on deaf ears at the jobless centres and food banks across the country, where those who despair don't much care about the economy's non-inflation capacity, labour productivity, and the Bank of Canada's assessment of the output gap.

From his note, here's Mr. Shenfeld's argument in its entirety:

"The unemployment rate, along with capacity use and various measures of price pressures, is an input into judging how far the economy is from its non-inflationary capacity. When the unemployment rate tumbles, capacity use climbs, and core inflation accelerates. The Bank of Canada takes that as evidence that the economy is getting closer to its non-inflationary potential. At that point, too much growth becomes too much of a good thing in terms of maintaining price stability, prompting interest rate hikes to slow the economy's advance.

"We've already seen some surprisingly low core inflation figures - 0.9 per cent on a 12-month basis - that cast doubt on the Bank of Canada's last estimate for where potential GDP lies, hinting at more elbow room for growth before we hit the inflationary wall. Similarly, the last couple of months saw the unemployment rate tick higher again, pointing to more slack in the labour market than we earlier thought, and a stronger pace to productivity. If that is sustained in the March labour force report in the week ahead, it could compel the Bank of Canada to upwardly revise its estimate of the level and growth rate for 'potential' non-inflationary GDP.

"Such a revision would substantially offset the impact of faster-than-expected GDP growth on the bank's assessment of the 'output gap,' the difference between actual GDP and its non-inflationary potential. Note that the Bank of Canada last forecast only 2.5-per-cent growth for the first quarter, while data to date point to at least 4-per-cent growth, even if February and March disappoint. Without an adjustment to potential, the bank would be moving up the date for the next rate hike ... Instead, a finding that there was more headroom for growth would be enough to justify waiting a few more months before pulling the trigger.

"More importantly, achieving faster growth without huge employment gains is synonymous with gains in output per worker. Such productivity achievements are critical if Canadian businesses are to remain competitive while paying their workers in an appreciated loonie. Add it all up, and don't cry too many tears if we find ourselves waiting a bit longer for a major drop in the unemployment rate, even if those without jobs, and, no doubt, Stephen Harper, might wish for a sharper decline in the week ahead's report."

We are a caring and just society, and I believe, and hope, that Mr. Shenfeld may be alone in suggesting we don't shed too many tears when too many desperate people are desperately seeking work.

Over all, economists believe this Friday's report from Statistics Canada will show the labour market rebounded in March, creating, hopefully, something in the area of 30,000 jobs. The unemployment rate, again hopefully, could dip to 7.7 per cent or, better still, 7.6 per cent.

If it doesn't, Mr. Shenfeld may not shed too many tears, but I might.

Go west, young man People from central and eastern Canada are expected to head west in increasing numbers in search of better jobs, Toronto-Dominion Bank predicts.

In a study on provincial economies today, economist Sonya Gulati said employment is favouring the western provinces. And while Newfoundland and Laborador will also see solid job growth, other provinces won't fare as well.

"As individuals look to improve their standard of living, East-to-West migration flows will pick up once again," she said.

"The combination of improving job market conditions and relatively low jobless rates support such demographic shifts. British Columbia, Alberta and Saskatchewan should receive much of these in-flows over the 2011-12 period. But, these in-migrations will largely come at the expense of central Canada and the Atlantic provinces."

For example, she projects job creation will climb by 3 per cent in Alberta and 2.8 per cent in N&L. New Brunswick, though, will eke out just 0.8-per-cent growth.

Markets heading nowhere Global stocks are mixed this morning, though largely going nowhere, and oil prices continue to climb.

Tokyo's benchmark Nikkei inched up 0.1 per cent, while Hong Kong's Hang Seng climbed 1.5 per cent. In Europe, London's FTSE 100, Germany's DAX and the Paris CAC 40 were up marginally by about 6:30 a.m. ET. Dow Jones industrial average and S&P 500 futures were also little changed.

"Markets are starting the week off in risk-on mode, as global equities are gently bid and government bond yields generally higher," said Scotia Capital economists Gorica Djeric and Derek Holt.

"U.S. Treasury yields are also up across the curve. Nevertheless, the U.S. dollar ... crude and gold continued to edge up since Friday. There are no obvious catalysts for this morning's gentle boost to risk appetite in bonds and equities.

"The unrest in the Middle East fails to stabilize and news out of Japan raise concerns that radiation leaks could last for months, maybe longer. This week's three key central bank meetings - [European Central Bank, the Bank of England and the Reserve Bank of Australia]- add to uncertainty. The ECB is the only major central bank that is expected to raise rates, with our forecast looking for a hike of 25 basis points to 1.25 per cent, the bank's first in three years. The likelihood of a hike has raised debate that doing so may not be beneficial to all the member nations, with recent data showing ongoing divide in economic recoveries."

Analysts take new look at Equinox Analysts are taking a fresh look at the value of Equinox Minerals Ltd. in the wake of a surprise offer from China Minmetals Corp., China's first hostile bid for a Canadian miner.

Late yesterday, a unit of the Chinese company said it would offer $6.3-billion for Equinox, a copper producer already caught up in a twisted saga with its own hostile bid for Lundin Mining Corp. , which in turn pulled out of a planned merger. Minmetals is offering $7 a share in cash.

Calling it a "lowball bid" today, UBS Securities Canada analysts Onno Rutten and Jo Battershill boosted their 12-month price target on Equinox shares to $8, above the bid price, from $6.80. They pegged "fair takeover value" at $8.30 a share.

"Although we see a low probability of other bids for [Equinox]emerging, we believe that shareholders could hold out for a bump by highly motivated Minmetals. Our scenario analysis supports an expected value target of $8/share for Equinox and we therefore raise our target to $8 and upgrade [Equinox]to Buy based on the implied return to the unaffected share price."

As The Globe and Mail's Brenda Bouw, Jacquie McNish and Tim Kiladze report today, Minmetals said it has eyed Equinox for about a year, but moved now to thwart the Equinox bid for Lundin.

ECB poised to hike rates The European Central Bank is widely expected to raise interest rates this week at a time some say is the worst possible moment for several of the struggling nations within the euro monetary union.

It would be the first rate hike in almost three years, and would come amid a crippling debt crisis for countries such as Portugal, Ireland, Greece and Spain, which markets have dubbed the PIGS. Some add in Italy for PIIGS.

ECB chief Jean-Claude Trichet has already signalled a rate hike for Thursday, expected to be a quarter of a percentage point, as he moves to keep a lid on inflation. But this has many observers worried.

"While it is true that 25 basis points added to interest rates is not the end of the world in normal times, we suggest that these are not normal times," said Carl Weinberg, chief economist at High Frequency Economics.

"Raising interest rates will push up the cost of borrowing for Euroland's troubled PIIGS. The PIG sub-group is, to be blunt, falling before our eyes ... Levels of GDP achieved three years ago are yet to be regained. Unemployment is 9.9 per cent, according to last week's report, and wages are not rising. Neither is the money supply, or level of credit. We cannot see what good purpose raising interest rates now will accomplish."

Portugal is still expected to be forced to seek a bailout, Ireland's banks are in deep trouble, some believe Greece will still need to restructure its debt, and, while Spain is a different beast, some still see big problems.

"The European central bank, ... is expected to raise rates by 0.25 per cent despite the consequences of them doing so to the peripheral economies already buckling under increasing borrowing costs and in some case negative growth," said CMC Markets analyst Michael Hewson.

"Fears about the state of the Spanish banking system and the amount of toxic debt exposure to the property market, continue to be raised with the collapse of a deal to merge four Spanish regional savings banks with bad property loans late last week."

Stingray on deal trail Stingray Digital, a Canadian music and broadcasting company that has been expanding rapidly around the world in the past two years, is announcing a major acquisition in Europe today, The Globe and Mail's Grant Robertson reports.

Montreal-based Stingray, known for its Galaxie TV channels that stream commercial-free music over cable TV in Canada and the United States, is buying Music Choice International, a company based in London.

In Economy Lab today

One of the most significant challenges facing whoever forms the next federal government will be patching the $12-billion to $14-billion a year hole in the budget balance left by the cuts to the GST. Economist Stephen Gordon looks at the strategies of the Conservatives and Liberals.

In Personal Finance today

The CRA is more likely to waive penalties if you act quickly to correct income tax omissions, a tax pro Cleo Hamel tells Dianne Nice.

The end of winter encourages many people to clean their homes, but spring is also a great time to organize and improve your financial planning.

Suze Orman offers a bracing dose of reality in her latest personal finance book, The Money Class.

From today's Report on Business

Follow on Twitter: @michaelbabad

 
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