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OTTAWA (Reuters) - Record job losses in the public sector and scarce opportunities for young people led to unexpected weakness in the Canadian labor market in July, hinting at a sluggish economic start to the third quarter.
Canada lost a net 39,400 jobs during the month, and the unemployment rate ticked up to 7.2 percent from 7.1 percent in June, Statistics Canada said on Friday.
Market players surveyed by Reuters had forecast the creation of 10,000 new jobs in July, and no change in the jobless rate.
"A definite disappointment," said David Tulk, chief macro strategist at TD Securities. "We sort of expected this as a continued hangover from the plus-95 (95,000 jobs) we saw in the month of May."
But analysts generally took the report with a grain of salt given the volatility of Canada's employment numbers, which are based on a household survey subject to a large margin of error.
The monthly jobs figures have whipsawed this year, peaking at 95,000 net new jobs in May after a loss of 54,500 in March.
The more reliable six-month trend showed average monthly jobs growth of 11,000 from February to July, still less than half the average gain in the previous six-month period, according to Statscan figures. Employment grew 1.2 percent in the year to July.
The trend is consistent with mild economic growth.
"You clearly want to see this decline partially reversed in August to make clear that we're not seeing a sharp deterioration in labor markets," said Paul Ferley, assistant chief economist at Royal Bank of Canada.
Almost all the jobs lost in July were in services, particularly in the healthcare and social assistance sectors in the province of Quebec. Public sector employment fell by 74,000 positions.
Employment among young people fell by a sharp 46,000 and the jobless rate was almost twice the national average at 13.9 percent. Summer employment for high school-aged students hit its lowest level since 1977.
Both full-time and part-time jobs disappeared, declining by 18,300 and 21,200, respectively.
On the bright side, 31,400 Canadians found private-sector jobs in July, and 13,500 joined the hard-hit manufacturing sector. The number of hours worked also edged up by 0.3 percent in the month, a possible boost to economic growth.
The Canadian dollar weakened to C$1.0352 against the U.S. dollar immediately after the release of the data but then rebounded a bit. At 10:15 a.m. (1015 ET) it was at C$1.0312 to the U.S. dollar, or 96.97 U.S. cents, compared with C$1.0324, or 96.86 U.S. cents, at Thursday's North American session close.
The report did little to change expectations that the Bank of Canada will hold its benchmark interest rate at the current 1 percent until late 2014.
"The Bank of Canada has already articulated that ... they plan to hold policy as is for quite some time and our expectation is that they are going to continue to do so," said Dov Zigler, economist at Scotiabank.
The Bank of Canada expects second-quarter annualized growth of just 1 percent but sees it bouncing back in the third quarter to a 3.8 percent gain.
Slowing wage inflation was another sign the bank may be in no rush to tighten monetary policy. Wage growth for permanent employees, closely tracked by the bank, slowed to 1.3 percent year-on-year in July from 2 percent in June.
Additional reporting by Alex Paterson, Alastair Sharp, Allison Martell; Editing by Jeffrey Benkoe, Lisa Von Ahn and Peter Galloway