Income Strategy October 5, 2007:

Surprisingly strong employment growth data was issued today for both the US and Canada this week. The Canadian Labour Force Survey data released by Stats Canada was considerably stronger than the 20,000 analysts had forecast coming in with an increase of 51,000 jobs created for the month of September.

The job growth was made up of 32,500 full time positions and 18,700 part time jobs. The unemployment rate declined to 5.9% from 6.05 the lowest unemployment rate in 33 years.

There were a couple of negatives in the report the manufacturing sector continues to loose jobs with another 3,000 disappearing in September. The pace of increases in the average hourly earnings may cause the Bank of Canada some concern. The increase in September registered at 4.1% over last year as compared to only 3.8% in August and only 2.8% back in May.

Average hourly earnings are increasing at a much faster pace than inflation and this may cause the Bank of Canada to increase interest rates sooner than anticipated.

The Bank of Canada is not likely to change interest rates in the near term as the Canadian dollar continues to surge against the US dollar. The loonie was up almost 2 cents right after the jobs data was released trading at $1.0219 the highest level since November 1976, the Canadian dollar closed at $1.0185 US up 1.59 cents. The currency will be doing a considerable amount of work for the Bank of Canada and the Bank will likely hold rates stable until there is a clear indication of the overall impact of the loonie trading well over par with the US dollar.

The US non-farm payrolls report was surprisingly strong with 110,000 new jobs created slightly better than the 100,000 forecast, the surprise come with the revisions for August which changed from a lose of 4,000 jobs to a gain of 89,000 jobs and July was revised from a gain of 68,000 to 93,000. Average hourly earnings were virtually unchanged and are not causing the same inflation concerns as the earning increases in Canada.

The increase in jobs was still not enough to hold the unemployment rate down in September which reported a 0.1% increase to 4.7%.

The employment picture in the US is not nearly as robust as in Canada but it is not showing the anticipated signs of a major slowdown. The fall out from lower housing construction activity has not been felt so far, it will be very interesting to see if the US economy can continue to show improvement going forward.