Canada rate hikes seen after stunning job gain

Fri Jul 9, 2010 2:55pm EDT
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By Louise Egan

OTTAWA (Reuters) - Canada's economy created six times more jobs than forecast in June, a near-record gain that pressures the central bank to raise interest rates again this month even as cracks in the U.S. recovery threaten to cool the country's scorching growth.

The staggering employment gain contradicts a recent string of weaker data, including another report on Friday showing housing starts fell in June.

Statistics Canada said on Friday that employment surged by 93,200 in June, flying past market expectations for 15,000 jobs.

In the past year, services sector job growth has more than doubled that of the goods-producing sector. The trend continued in June.

Businesses are generally more confident about the domestic economy than export markets, particularly the United States, where demand for Canadian goods is faltering. That partly explains why services like retail stores and wholesalers created the most jobs in June, while factory owners dismissed workers.

The overall gains were the second largest on record after the 108,700 reported in April. The labor market has now nearly recovered the 417,000 jobs lost during the recession.

Still, the unemployment rate is well above pre-recession levels at 7.9 percent, though down from 8.1 percent in May.

Even taking into account signs of slowing domestic growth, the labor market strength reflects an expanding economy where emergency low interest rates no longer make sense, analysts said. The report increased expectations of a second consecutive central bank rate hike on July 20.   Continued...

<p>Shadows are seen as a man walks down Bay Street in the financial district in Toronto, March 11, 2009. REUTERS/Mark Blinch</p>