OTTAWA (Reuters) - Canadian job growth slowed in May to its weakest since December on a sharp drop in full-time employment, a sign of a cooling economy that may spur the Bank of Canada to cut interest rates again this month.
Statistics Canada reported on Friday the economy added 8,400 jobs in the month as employers hired 40,600 part-time workers and dropped 32,200 full-time staff -- the biggest loss of full-time jobs since June 2006.
The unemployment rate stayed unchanged at 6.1 percent.
The performance was slightly below the median forecast in a Reuters poll for 10,000 jobs and followed four months of stronger than expected gains. In December 2007, the economy shed 18,700 workers.
Economists were not surprised by the softening labor market but said the details of the report, including a rise in manufacturing jobs and strong wage growth, revealed pockets of strength.
“It has a bit of an ‘Alice in Wonderland’ feel to it. Beyond the headline job numbers and the unemployment rate staying steady, almost every other aspect of the report was surprising,” said Doug Porter, deputy chief economist at BMO Capital Markets.
Eric Lascelles, chief economist and rates strategist at TD Securities, called the report a “head spinner,” full of contradictory signs, but said the bottom line pointed to at least one more quarter-point cut in the Bank of Canada’s lending rate.
“In the end, I think the implications for the Bank of Canada are largely as the headline suggests, which is the labor market is softening. You can justify a 25 basis point cut off of this,” he said.
The Bank of Canada has slashed its overnight lending rate by 150 basis points since December to 3.0 percent and has signaled a further reduction without committing to action at its next decision on June 10.
All of Canada’s 12 primary securities dealers predicted on Friday that the central bank would lower rates by a quarter point next week and then stand pat in July.
The bank sees little pressure from inflation but may take note of the labor report showing hourly wages rising 4.6 percent for permanent employees.
The Canadian dollar fell slightly to C$1.0208 to the U.S. dollar, or 97.96 U.S. cents, down from C$1.0199 to the U.S. dollar, or 98.05 U.S. cents, shortly before the data. Bonds were little changed.
The services sector has been the main driver of Canada’s strong labor market in the past year but that trend was reversed in May as services employment fell 0.2 percent while goods-producing sectors advanced 0.7 percent.
That detail is even odder considering the heavy loss of full-time jobs. Nearly 90 percent of jobs added in the goods-producing sector in the past year were full-time, compared with 60 percent for services, Statscan analyst Jason Gilmore said.
Manufacturing, battered by layoffs in the auto sector as U.S. demand weakens and gasoline prices soar, showed 1.8 percent growth in employment despite losing 66,400 jobs in the past year.
“You’ve got this significant surge in manufacturing jobs, although I’d be careful not to run too far with that,” said Stewart Hall, markets strategist at HSBC Canada. Hall said he expected manufacturing jobs to pull back again in coming months.
Health care and social assistance and “other” services added employment in May while workers in agriculture as well as in professional, scientific and technical services registered losses, Statscan said.
Additional reporting by John McCrank in Toronto; editing by Rob Wilson