August 7, 2009 / 6:18 PM / 8 years ago

Canada recovery speed in doubt after jobs data

4 Min Read

OTTAWA (Reuters) - Canadian job losses in July were more than double what had been expected, prompting the finance minister to speak out to try to calm any "euphoria" over an imminent economic recovery.

Statistics Canada said on Friday the economy suffered net job losses of 44,500 in the month, more than double the number expected as employers cut workers even though the economy is commonly thought to be on the mend after its worst recession since the early 1990s.

The construction industry bled the most workers, followed by food and accommodation services, while factory workers were largely spared.

The unemployment rate remained unchanged from June at an 11-year high of 8.6 percent as fewer people stayed in the labor market looking for work.

The dismal numbers may push some economists to push back their forecasts of an economic turnaround this quarter.

"This indicator suggests that economic recovery needs to be pushed off perhaps a little further," said Eric Lascelles, chief economist at TD Securities.

A separate release showed purchasing activity in the Canadian economy expanded in July for a second straight month but at a slower pace than expected.

Finance Minister Jim Flaherty, in an interview with CTV television, warned Canadians to expect more job losses for months to come and said the recession is not over yet.

"It's going to be a difficult year. I've been saying that, I try to calm the euphoria about 'we're out of a recession'," Flaherty said. [nN07134490]

Upbeat Central Bank

The Bank of Canada stirred hopes last month when it predicted the economy would grow in the current quarter by 1.3 percent, following a deep recession spanning the three previous quarters. [nN23196742]

"This report may cloud their view a bit," said Sal Guatieri, senior economist at BMO Capital Markets in Toronto.

The central bank has promised to keep its benchmark interest rate at a record low of 0.25 percent through June 2010, conditional on inflation staying under control.

But if the outlook worsens considerably, the bank could either keep rates on hold for longer or consider printing money to buy bonds in the market, a step known as quantitative easing.

The Canadian dollar fell to a one-week low against its U.S. counterpart after the report, hitting C$1.0851 to the U.S. dollar, or 92.16 U.S. cents. It later recovered slightly to trade at C$1.0822, or 92.40 U.S. cents.

The jobs data has become a hot-button political issue for Conservative Prime Minister Stephen Harper as the opposition Liberals pressure him to improve employment insurance benefits -- an issue that may be shaping up as the trigger for a federal election in the autumn.

Still, economists pointed to some good signs -- the overall pace of job losses appears to be slowing from earlier this year and the manufacturing sector carnage is slowing. Also, a lack of summer jobs for students explained part of July's big rise in unemployment and that trend will be reversed in September.

U.S. employment fared better than expected in July. U.S. employers cut a fewer than expected 247,000 jobs, providing the clearest evidence yet that the economy there is turning around.

Additional reporting by Toronto Treasury Desk; editing by Peter Galloway

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