OTTAWA (Reuters) - The recovery in Canada's job market stalled in December as employers unexpectedly cut 2,600 jobs after hefty hiring in November, another sign the economic revival will be sluggish rather than in leaps and bounds.
The data released by Statistics Canada on Friday showed the unemployment rate remained unchanged at 8.5 percent, as forecast in a Reuters poll.
The job losses, which followed a 79,000-job gain in November, are small enough to be considered a flat reading but disappointed the market consensus of a 20,000 increase.
The Canadian dollar fell immediately after the report but economists focused on evidence the economy is holding on to gradual gains made over the past few months.
"This is consistent with an economy that is on the mend but at a relatively moderate pace," said Don Drummond, chief economist at Toronto-Dominion Bank.
The Canadian dollar fell as low as C$1.0386 or 96.28 U.S. cents, from C$1.0314 or 96.96 cents just before the report.
The currency fully regained the lost ground 90 minutes later, however, after U.S. data showed 85,000 job losses in December. It touched C$1.0306, or 97.03 U.S. cents after that report.
The Bank of Canada is likely to shrug off the worse-than-expected numbers when it sets interest rates on January 19. It is widely expected to keep its benchmark interest rate at an all-time low of 0.25 percent until mid-year.
"It reinforces their commitment to remain on the sidelines," said Paul Ferley, assistant chief economist at the Royal Bank of Canada.
But the report keeps pressure on Prime Minister Stephen Harper as his Conservative government prepares its next budget, to be presented on March. 4.
Harper has vowed not to slow down on stimulus measures until 2011 and has said, in his view, the recession is not truly over until unemployment numbers come down.
Doug Porter, deputy chief economist at BMO Capital Markets, found some encouraging news in the details of the report, which showed the private sector gaining marginally.
"I wouldn't read too much into the small drop in the headline number. I think it's a very partial giveback from the big run-up we saw in November," he said.
"It's mildly disappointing but I don't think it derails the broader picture that the Canadian economy is in the early stages of a recovery."
Full-time employment accounted for most of the decline. Self-employment increased and 22,100 workers fell off the public sector payroll.
Employment was 240,000 below year-ago levels and remained 323,000 lower than the peak in October 2008, Statscan said.
Economists at Scotia Capital predicted this week that employment levels would recover to pre-crisis levels this year, adding more than 300,000 jobs.
Others were less upbeat. Stewart Hall, markets strategist at HSBC, said the economy needs to generate between 20,000 and 23,000 jobs per month just to keep up with growth in the labor force.
"For 2010, that may be all that we can expect from the economy, that jobs growth merely keeps pace with labor force growth," he said.
The goods-producing sector shed jobs in December, dragged down by 9,700 job losses in manufacturing, which was partially offset by a 10,700 gain in construction jobs. Although the services sector overall saw gains, the heaviest declines were in transportation and warehousing services, business, building and other support services and public administration.
Hourly wages of permanent employees, closely watched by the Bank of Canada for inflation trends, rose 2.2 percent in December year-on-year, up from 2.1 percent in November.
Additional reporting by Randall Palmer in Ottawa; Scott Anderson, Jennifer Kwan and Claire Sibonney in Toronto; Editing by Jeffrey Hodgson