October jobless rate jumps on hefty layoffs

Unemployment rate climbs to 7.3 per cent as economy unexpectedly sheds 54,000 jobs
|hrreporter.com|Last Updated: 11/04/2011

(Reuters) — Unexpected job losses in October pushed Canada's unemployment rate higher, confirming expectations the economy is weakening and interest rate increases are off the radar.

The economy unexpectedly ditched almost all the jobs gained in September as a sluggish economy led to layoffs in manufacturing and construction, according to Statistics Canada on Friday.

Net job losses of 54,000 last month were the largest since February 2009 and pushed the unemployment rate back up to 7.3 per cent — the same level seen in August — from 7.1 percent.

The data contrasted with market expectations for 12,000 new positions and followed an equally surprising increase in September of nearly 61,000.

``Very, very weak job report, I don't think there is anything really redeeming here,'' said Sheryl King, head of Canadian economics at Bank of America-Merrill Lynch.

``We were on the back of a strong month before so you could argue that there is a bit of mean reversion, but the drop in manufacturing is worrisome at this point,'' she said.

Most of the details in the report were discouraging, with the private sector shedding 32,000 jobs and some 72,000 full-time positions vanishing.

Manufacturing and construction were the hardest-hit sectors in October, Only the natural resources sector saw significant gains.

Canada's labour market bounced back more quickly from the recession than that of the United States and by January had recouped all the jobs lost during the downturn. But employment in some sectors like manufacturing is still below the pre-recession peak and is not expected to ever fully recover.

Statistics Canada said total employment rose by 1.4 per cent in the past year and full-time employment grew 1.6 per cent.

The sluggish October labour market fits with the Bank of Canada's projection of just 0.8 per cent economic growth in the fourth quarter on an annualized basis, down from an estimated two per cent in the third quarter.

In an indication inflationary pressures are not a concern for the central bank, wage pressures continued to subside in October. The average hourly wage of permanent employees, the indicator most closely tracked by the central bank, climbed 1.3 per cent on the year from a 1.6 per cent increase in September.

Economists expect the central bank to keep its key rate on hold at an ultra-low 1 percent for another year or more, but markets are pricing in a rate cut.

``Clearly it will discourage the Bank of Canada from raising interest rates for quite some time. If economic conditions deteriorate, it's possible the Bank would cut interest rates. For the moment, though, we expect steady policy,'' said Sal Guatieri, senior economist at BMO Capital Markets.

Overnight index swaps, which trade based on expectations for the central bank's key policy rate, showed that traders priced in higher odds of a rate cut next year.

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