OTTAWA (Reuters) - Canada's unemployment rate spiked to an 11-year high in May as the worst recession since World War Two led to massive lay-offs in the factories of Ontario, once the country's manufacturing powerhouse.
Statistics Canada said on Friday the net job losses in May totaled 41,800 and the unemployment rate jumped to 8.4 percent from 8.0 percent in April.
The number of factory jobs in the province of Ontario, the manufacturing hub, fell to its lowest level since 1976 when record-keeping began, the federal agency said with the auto sector suffering the worst losses.
The data was worse than expected, triggering an immediate drop in the Canadian dollar. The report comes as manufacturers are being hammered by an unprecedented rise in the value of the currency against the U.S. dollar, which hurts exports.
Analysts surveyed by Reuters had predicted employers would drop 33,000 staff from payrolls and the jobless rate would rise to 8.2 percent.
"Worse than expected report ... Obviously Ontario's economy is taking the brunt of the sharp downturn in exports and the restructuring in the auto sector," said Sal Guatieri, senior economist at BMO Capital Markets.
The Canadian dollar weakened slightly to around C$1.1033, or 90.64 U.S. cents, from around C$1.1022, or 90.73 U.S. cents, just before the data.
The swift appreciation of the Canadian dollar, which jumped 9.3 percent against the U.S. dollar in May and touched an eight-year high earlier this month -- prompted a warning from the Bank of Canada on Thursday.
The bank said the currency's strength could erase any early signs of economic recovery.
The currency concerns combined with larger-than-expected job losses, which could pinch consumer spending further, may force the central bank to rethink its view that no unconventional action is required to boost the economy, now that it has cut rates to their lower limit of 0.25 percent.
Still, economists said that moment had not yet arrived.
"For the Bank of Canada, I don't know if there's anything all that profound," said Eric Lascelles, chief economics and rates strategist at TD Securities.
Lascelles said the unexpected jump in employment in April was an outlier.
"Anyone was dreaming in Technicolor if they thought we were going to continue to see 36,000 job gains on a monthly basis. The realist would have expected a return back to this sort of outcome," he said.
Job losses were all in full-time positions, while part-time employment increased slightly.
In addition to factory job losses totaling 58,400 in the month, the transportation and warehousing sector also saw a sharp decline of 15,700 employees. The only notable increase in employment was in public administration, up 19,000.
Wages for permanent employees gained 3.2 percent in May compared with May 2008, down sharply from a 4.3 percent increase in April.
(Additional reporting by Jennifer Kwan and Scott Anderson in Toronto)
Editing by Theodore d'Afflisio