February 7, 2014 / 1:42 PM / in 4 years

Canada January employment bounces, dampening rate cut talk

A construction worker sweeps snow from iron beams on the Bay Adelaide East office building site after a storm in Toronto February 6, 2014.Chris Helgren

OTTAWA (Reuters) - The Canadian economy in January recouped 29,400 of the 44,000 jobs lost in December, and the unemployment rate fell to 7.0 percent from 7.2 percent, diminishing talk of a possible interest rate cut by the central bank.

Statistics Canada said on Friday that full-time positions rose by an estimated 50,500, the largest such increase since May. However, 28,300 of the new jobs were in self-employment, which usually is less secure and carries fewer benefits.

Royal Bank of Canada assistant chief economist Paul Ferley said the fact that the unemployment rate fell in January after December's rise laid "to rest concerns that maybe the December number was pointing to an onset of greater weakness in labor markets."

Ferley added: "I think this increase in employment in January dampens expectations of the possibility of the Bank of Canada having to cut rates. But certainly with inflation remaining low, there's no pressure to start moving rates higher."

The employment gain, the largest since August, exceeded a forecast for 20,000 new positions by economists surveyed by Reuters. The economists had expected the unemployment rate to fall only to 7.1 percent.

The Canadian numbers contrasted with a U.S. report that showed job creation slowed sharply over the past two months. Nonetheless, U.S. nonfarm payrolls rose by 113,000 in January and the jobless rate fell to 6.6 percent from 6.7 percent.

The two countries measure unemployment differently, and Statistics Canada said the Canadian rate of 7.0 percent would have been 6.0 percent if U.S. methods had been used. In November it was 6.9 percent.

BMO Capital Markets chief economist Doug Porter said the December weakness was now shown to have been mostly due to harsh weather. "I think the bottom line is it wasn't nearly as bad as what was suggested a month ago," he said.

The average monthly jobs gain picked up to 15,300 in the six months to January from 3,300 in the six months to December.

"The job numbers are very good this morning, but as always we look at the trend in the job numbers over time," Finance Minister Jim Flaherty told a news conference in Toronto after buying new shoes, as is the tradition, for his presentation of the federal budget next Tuesday.

"The trend is good and this is comforting as we plan the budget and plan modest and steady job growth in Canada."

The employment numbers are estimates based on a sample survey and are subject to some volatility. The sampling size means that the overall employment figure could vary by up to 28,900 jobs two-thirds of the time, or up to 57,800 jobs 19 times out of 20.

The Canadian dollar got a sharp boost from the report, which was paralleled by the weaker-than-expected U.S. jobs data. It rose quickly to C$1.0964 to the U.S. dollar, or 91.21 U.S. cents, from C$1.1056, or 90.45 U.S. cents, just before the report was released. It settled back to C$1.1014, or 90.79 U.S. cents, at 11:45 EST (1645 GMT).

Overnight index swaps, which trade based on expectations for the central bank's policy rate, priced in a smaller chance of a rate cut this year after the report was released.

Editing by Bernadette Baum; and Peter Galloway

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