(Reuters) — Canada's economy unexpectedly lost jobs in August, overshadowing other signs the economy was making a comeback after a bleak second quarter and keeping central bank rate hikes off the table.
The Canadian dollar weakened after Statistics Canada said Friday that the economy lost 5,500 jobs in August, and the jobless rate rose to 7.3 per cent from 7.2 per cent.
The net job losses were far worse than the median market forecast of a gain of 25,000 and matched only the most bearish estimate in a Reuters survey of 23 analysts.
Canada's job market had been far healthier than that in the United States since the recession, but the latest numbers are more in line with sobering U.S. employment reports that prompted U.S. President Barack Obama to propose a US$447 billion jobs package on Thursday to jump-start the sagging economy.
``While it seems surprising considering our very strong record in recent months, it's not surprising given the problems that we saw accumulate in the first half of the year which basically peaked in the summer months,'' said Aron Gampel, deputy chief economist at Scotiabank.
``I would look at it as a part of this process of adjustment to a slower growth trajectory in North America and around the world and it highlights the increasing uncertainty by businesses towards the job market.''
The Canadian dollar dropped to $0.9951 against the U.S. dollar, or US$1.0049, from $0.9927, or US$1.0074, heading into the release.
``Disappointing,'' said Sal Guatieri, senior economist at BMO Capital Markets. ``We are seeing the lagged effect of the economy contracting slightly in the second-quarter on labor markets now.''
However, some of the details were less grim, with 25,700 full-time jobs created versus a loss of 31,200 part-time positions. Hiring was strong in the public sector and in services industries.
Fuels rate cute debate
The economy has generated a net 223,000 jobs in the past year. As of April this year, it had recovered all the full-time jobs lost during the recession.
StatsCan said the construction sector saw the biggest layoffs in August, followed by transportation and natural resources. The biggest gains were in health care and social assistance, while employment was unchanged in manufacturing.
The report, and a worsening global economy, gives the Bank of Canada another reason not hike interest rates this year.
The bank held its key rate unchanged on Wednesday at one per cent and analysts surveyed by Reuters immediately after the rate statement expected the next move to be up, but not until mid to late 2012.
But overnight index swaps, which trade based on expectations for the policy rate, have been pricing in a cut. Following the jobs report, the swaps market showed investors slightly increased their bets on rate cuts later this year and in early 2012.
``The expectation here is that the Bank of Canada, rather than raising rates, will switch the other way to maybe lowering rates although I don't think that is in the cards at this particular time,'' said Gampel.
Mark Chandler, head of fixed income and currency strategy at RBC Capital Markets, said the impetus for interest rates and the Canadian dollar is likely to be driven by overall risk appetite and what's happening abroad.
The average hourly wage of permanent employees, closely watched by the Bank of Canada for signs of inflationary pressure, rose 1.5 per cent in August from a year earlier, compared with 1.2 per cent in July.