(Reuters) — Canada's economy created a negligible 7,700 jobs in May in an abrupt halt to a two-month hiring spree that had yielded the biggest employment gains in three decades, but markets took the news in stride and saw little impact on monetary policy.
The figures released by Statistics Canada on Friday, which also showed the unemployment rate holding steady at 7.3 per cent, were below a median forecast of 10,000 net new jobs predicted by analysts in a Reuters poll.
Other data showed an unexpected trade deficit, slower housing starts and weak productivity growth, adding to pressure on policy makers as the European debt crisis deepens.
Still, few had thought the outsized employment gains of 82,300 jobs in March and 58,200 in April would last. And the six-month average of 28,200 net new jobs monthly, the equivalent of about 260,000 in the much bigger economy in the United States, led analysts to take a glass-half-full view of the job market.
"The fact that we printed a positive was actually a very good sign. We did think that there was a chance that we could slip into negative territory," said Ian Pollick, fixed-income strategist at RBC Capital Markets.
Doug Porter, deputy chief economist at BMO Capital Markets was relieved that the employment report was largely as expected after several months of volatility, and does not think it adds pressure on the Bank of Canada to postpone interest rate hikes.
"I don't think these numbers will make any impression at all on the Bank of Canada. It doesn't move the needle one iota," he said.
Bank still eyes rate hike
The data comes three days after the Bank of Canada said the country's economic momentum was in line with its expectations and signaled intentions to raise its main policy rate from the current one per cent if the recovery remained intact.
But the central bank also warned of a deepening euro zone crisis and slightly softened its previously hawkish tone on rate hikes.
The Canadian dollar initially weakened after the data to $1.0358 against the U.S. currency, or 96.54 U.S. cents. But it soon return to trade near the $1.0339 level it stood at before the data.
Overnight index swaps, which trade based on expectations for the central bank's key policy rate, showed that traders reduced bets on a rate cut in the second half of 2012 after the data.
Manufacturing was the sector that created the most jobs in May, while the construction industry and the information, culture and recreation sector laid off the most workers.
Details of the report were not upbeat. The public sector added nearly 7,000 employees in May while private businesses took 22,500 workers off their payrolls.
Of the 7,700 net new jobs, 6,300 were part-time.
Slide into deficit
In another sign of friction in the recovery, Canada unexpectedly slipped back into a trade deficit in April for the first time in six months.
Exports fell 1.2 per cent in the month while imports edged up 0.1 per cent for a deficit of $367 million, compared with a surplus of $152 million in March, Statscan said. Analysts had expected a small surplus in April.
Exports of industrial goods and materials tumbled 5.8 per cent in April on weak demand for metal ores, metals and alloys.
Exports to the U.S.,Canada's top market, fell for a fourth straight month, narrowing the trade surplus with the neighboring country to $3.8 billion from $4.5 billion in March.
Labour productivity rose at a slower pace of 0.1 per cent in the first quarter, after two straight quarters of 0.7 per cent growth.
And housing starts slowed in May after a red-hot April to 211,400 at a seasonally-adjusted annualized rate, down from 243,800 units in April.
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