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Stocks look for lift this week from key U.S. data, including job creation

TORONTO - Investor sentiment could find lift this week from a series of economic data, culminating at the end of the week with the U.S. jobs report for June.

TORONTO - Investor sentiment could find lift this week from a series of economic data, culminating at the end of the week with the U.S. jobs report for June.

Hopes are high that the report will show that the private sector is starting to ramp up hiring as the world's biggest economy struggles to emerge from recession.

"What we need to see is private sector job creation of over 100,000 to reduce the unemployment rate (of 9.7 per cent)," said BMO Capital Markets senior economist Sal Guatieri.

Investors were bitterly disappointed with the May job numbers, which showed private sector employment rose by 41,000. This time around, economists are looking to see job creation in that segment come in at about 50,000, which would offset an overall reduction of 200,000 jobs in the U.S. as the government starts to layoff some of the thousands of temporary workers hired for the census.

It all comes down to confidence on the part of employers that the rebound will strengthen.

But that sentiment has been in short supply of late with pessimism deepening last week in the wake of a new home sales report for May that showed sales in a state of collapse, plunging 33 per cent from April.

"Essentially, the roof caved in on builders that month, a record decline to a record low in home sales in May, the first month after the tax credit expired," said Guatieri.

"So there is some reason for that but the pullback is much sharper than anyone would have anticipated."

He observed that larger firms have started to hire in recent months, but the situation is more problematic with smaller companies, which are having a harder time in getting access to bank credit.

Canadian employment data for June will be delayed a week because of the Canada Day holiday.

Before the release of the U.S. non-farm payrolls report, investors will feel the pulse of U.S. consumers and how confident they feel on Tuesday. The consensus calls for the U.S. Conference Board’s consumer sentiment index to slip slightly from 63.3 in May to 62.8 in June, which would partly reflect a tumble in stock markets that month.

On Thursday, investors will see the latest snapshot of the strength of the American manufacturing sector on Thursday. It has been a relative bright spot, hovering at six year highs over the past three months.

"Manufacturing is pretty strong in the U.S., benefiting from continued inventory rebuilding, strength in exports and strength in business capital spending," observed Guatieri.

"That is the one area of the U.S. economy that does not appear fragile at the moment."

He also noted that an increase in factory jobs accounted for about two thirds of the increase in private sector employment during May. The trouble is, the sector only accounts for about 12 per cent of the overall U.S. economy.

"So you really need the services sector, business, professional, financial services and construction to come back to generate the kind of jobs we need to reduce the unemployment rate," he said.

Guatieri expects the index to come in at about 59, which would indicate "fairly strong" growth in the factory sector.

The Toronto market slid 3.66 per cent during May as investors also worried about the government debt crisis in Europe derailing a recovery, but the damage was much worse in the U.S.

"It was the worst May in nearly 60 years with stocks dropping eight per cent or so," Guatieri said.

"Turbulence in equity markets probably weighed on sentiment and on top of that, perhaps more importantly, is the very anemic job growth that we’re seeing in the U.S. economy still. So until that unemployment rate comes down, perhaps below eight per cent, American consumers will remain fairly grim."

 
 
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