(March 9 – 11:10 ET) – The U.S. jobs report has Canadian economists concerned about spread of the manaufacturing slowdown to service industries. Total jobs, south of the border, rose 135,000 in February, though, so the picture is a little brighter than expected.

However as BMO Nesbitt Burns points out, there “was a startling 1.4% drop in total manufacturing hours worked, pointing to a big-time drop in factory production this month”. There was also a large drop in the work week for construction industries.

Despite the weakness in manufacturing, the service-side of the economy continues to demonstrate strong growth. CIBC World Markets is backing off its call for a recessionary quarter in the U.S.

“As long as productivity growth is still positive, services employment now looks to be sufficient to put GDP growth in the low side of the plus column, as opposed to our call for a negative first quarter. Even if Q1 has nearly 1% GDP growth, there’s a clear recession threat if the manufacturing slump is allowed to spread to services. Lower rates are the best inoculation against that contagion, and we could still get a 50 basis-point cut if February data, due next week, is as soft as we expect.”

“The clear investment theme is to avoid the plunge in manufacturing and ride the growth in construction and services industries,” says BMO. “We don’t think the factory declines are close to over yet. Further interest rate cuts are needed to keep construction moving upward and offset the problems developing in high tech industries.”
-IE Staff