Unemployment rate edges up to 8 per cent

Canadian economy unexpectedly shed 9,300 jobs in July

Canada's economy unexpectedly shed 9,300 jobs in July, the first monthly decline this year, suggesting the recovery is cooling and the pace of future interest rate hikes may slow.

Statistics Canada said on Friday that a loss of 139,000 in full-time employment positions was not quite offset by a 129,700 jump in part-time jobs. The unemployment rate rose to 8.0 percent from 7.9 percent.

Analysts in a Reuters poll had forecast an increase of 15,000 jobs and a 7.9 percent unemployment rate.

It was the first time the economy dropped jobs since losing 29,300 in December and followed a strong gain of 93,200 jobs in June. Jobs growth also beat expectations in May and April.

"The composition is not favorable with a huge drop in full-time employment. However, it's one of those reports where you have to put it in context in terms of what we've been seeing in previous months," said Paul Ferley, assistant chief economist at Royal Bank of Canada.

"I view July as a bit of a payback."

The latest report was more in line with weak jobs data in the United States. Figures out Friday showed U.S. employment fell for a second straight month in July as private hiring rose less than expected, leaving the unemployment rate there stuck at 9.5 percent.

Canada's dollar, which weakened on the Canadian data, hit a session low of $1.0260, or 97.47 U.S. cents, after the U.S. report also cast doubt about the strength of the North American recovery.

The Canadian data suggested the Bank of Canada may now be less likely to raise interest rates in coming months, though analysts were quick to point out the report can be volatile and the central bank prefers to look at the longer-term trend.

Yields on overnight index swaps, which trade based on expectations for the Bank of Canada's key policy rate, showed the market is pricing in a 59.5 percent likelihood of a September 8 rate hike. That compared with about 68 percent just before the Canadian data.

In June the Bank of Canada became the first Group of Seven central bank to raise interest rates since the start of financial crisis. It hiked rates a second time in July, bringing its key rate to 0.75 percent.

Education, finance jobs lost

Canada's services sector, which generated strong jobs growth in June, shed more than 51,000 jobs last month.

Education services produced the biggest decline, losing 65,300 jobs. The government agency said the losses were spread across occupations, including teachers and administrators.

"I think Statistics Canada is struggling with the seasonal adjustments in the education category. This is at least the fourth year in a row where we've seen a big drop in education and often times it gets partially reversed in August," said Doug Porter, deputy chief economist with BMO Capital Markets.

"I don't think it changes the bigger picture. I don't think the Bank of Canada tends to overreact too much to these very volatile employment numbers. I think the bigger story here is still that the job market has improved quite a bit over the past year."

The finance, insurance, real estate and leasing sector also dropped 29,800 jobs, bringing the level of employment down to where it was in July 2009.

The goods-producing sector added 42,000 jobs, boosted by a 28,500 job gain in manufacturing.

The average hourly wage of permanent employees, watched by the Bank of Canada for inflation pressures, was up 2.6 percent in July from a year earlier.

(With additional reporting by Jack Reerink and Howaida Sorour in Ottawa, and Ka Yan Ng and John McCrank in Toronto)


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