TORONTO - A number of key economic reports this week will give investors more insight into whether the fundamentals are truly in place to allow financial markets to continue building on the strong gains of the past seven months.
Given the market's sensitivity to bad news, there will likely be caution ahead of the most important piece of economic data coming during the week, the U.S. jobs report.
The consensus among economists calls for a loss of about 180,000 jobs, less than the 216,000 jobs eliminated during August when the unemployment rate ticked two tenths of a point higher to 9.7 per cent - the highest rate since June 1983.
Economists also expect the unemployment rate to head up a tenth of a point to 9.8 per cent. A reading of around 175,000 would be the best showing since August, 2008. Employment losses started to pile up the following month in the U.S., when 320,000 jobs were lost.
Canadian jobs figures for September will not be released until Oct. 9.
Toronto markets fell last week following four straight weeks of gains as doubts arose about the strength of the recovery. Canadian retail sales for July fell unexpectedly and there were disappointments with U.S. housing resale figures and durable goods orders for August.
New York indexes also slid last week even as the U.S. Federal Reserve announced that "economic activity has picked up following its severe downturn" and indicated rates will stay at historic record lows of near zero for some time to come.
"Reading through the lines, they still have concerns about how robust this recovery will be," said Doug Porter, deputy chief economist at BMO Capital Markets.
"But the fact is, it effectively echoed Bernanke's comments that the recession is over but there are still a lot of questions over how strong the recovery is going to be - and I don't think the Fed provided too much reassurance on that front."
A long string of gains has sent indexes up more than 50 per cent since early March, leaving some investors nervous about the sustainability of the rally, and leading them to scan economic data for reassurance that more solid gains are possible.
"I was hoping we wouldn't get back to behaving like this, but this is exactly the way it used to be and the way it's gone back to," said Gareth Watson, director, Canadian equities portfolio advisory group at Scotia McLeod.
"The market is now reacting I think to day to day data points, and not looking at trends. For example, whether oil inventories go up or down in a given week - a drawdown in one week is not going to make a difference in my view as to whether a stock is going up."
Also coming out during the week is a reading on Canadian gross domestic product growth for July.
Porter thinks those numbers should look relatively solid and will signal "a little bit more of an official end to the recession than that the meagre 0.1 per cent rise in June."
But he cautions against reading too much into it, because it takes more than just a couple of months of economic data to signal an end to the downturn.
"Just like saying a recession has started, it really does require time to be able to officially say it," said Porter.
In the U.S., investors will get the latest reading on the health of manufacturing when the Institute for Supply Management releases its index on the sector. Data on consume confidence come out Tuesday. Rounding out the week is U.S. auto sales, which come out on Thursday.
Investors are braced for a sharp drop in sales from the month before, as they were heavily supported by the U.S. government's Cash for Clunkers program.
"I've heard the early reports are that sales dropped back to about a (annual pace of) 10 million in September, about where they were before, in July," said Porter.
"That's down from 14 million in August, which by the way was no great shakes - an average year there for quite a few years was 16 million."