Article by Benjamin Tal

 After bleeding workers in recent months, Canadian factories boosted headcount in December, helping employment register its first positive reading after two straight losses. Canadian jobs edged up by 17,500, led by hiring in the manufacturing sector.

However, we don’t expect a renewed pickup in manufacturing hiring as that sector continues to struggle with the pain of an elevated Canadian dollar that’s inflating the wages of manufacturing workers relative to global competitors.

 In the US, employment gains are putting more money in household pockets, but we expect only a slightly stronger-than-consensus retail report for December. All told, not enough here to change the prevailing view that America’s economic engines were in somewhat better shape as 2011 came to a close. December’s pace of hiring in Canada, taken together with the last few months’ employment reports, still suggests a weak deceleration in job creation and economic growth. That’s consistent with our view that Canada’s fourth quarter Gross Domestic Product (the size of our economy with inflation factored in) scaled down to around a 2% annual pace. In December, we forecast that the Bank of Canada would likely continue to hold interest rates steady through to the end of 2013. Governor Mark Carney’s “flexible” targeting approach gives the Bank some latitude in responding to inflation. Notwithstanding the risks created by payroll tax wrangling in the US, we’re sticking with that rate forecast.