OTTAWA (Reuters) - Canada’s economy unexpectedly lost jobs in July in the first such decline this year, suggesting its once robust recovery is cooling and the pace of future interest rate hikes may slow.
The 9,300 job losses brought Canada more in line with the United States, where figures out Friday showed U.S. employment fell for a second straight month in July, leaving the unemployment rate there stuck at 9.5 percent.
Statistics Canada said on Friday that a loss of 139,000 in full-time employment positions was not quite offset by a 129,700 jump in part-time jobs. The unemployment rate rose to 8.0 percent from 7.9 percent.
Analysts in a Reuters poll had forecast an increase of 15,000 jobs and a 7.9 percent unemployment rate.
It was the first time the economy dropped jobs since December and followed a strong gain of 93,200 jobs in June. Jobs growth also beat expectations in May and April.
“I view July as a bit of a payback,” said Paul Ferley, assistant chief economist at Royal Bank of Canada.
“Domestic conditions remain strong enough that the Bank of Canada will continue to tighten but the pace will be a fairly gradual one.”
Canada’s dollar weakened on the Canadian data and later hit a low of C$1.0301, or 97.08 U.S. cents, as the U.S. report also cast doubt on the strength of the North American recovery.
“The job numbers today indicate what we have been saying, the global recovery remains fragile ... it’s not going to be all smooth sailing,” Canadian Prime Minister Stephen Harper told reporters in Ottawa.
Secondary Canadian data that added to the view included the Ivey Purchasing Managers Index, which surveys purchasing decisions made across the country. The index fell to an unexpectedly low 54.0 in July from 58.9 in June.
The numbers suggested the Bank of Canada may now be less inclined to raise interest rates in coming months, though analysts were quick to point out the report can be volatile and that the central bank prefers to look at the longer-term trend.
Yields on overnight index swaps, which trade based on expectations for the Bank of Canada’s key policy rate, showed the market is pricing in a 59.5 percent likelihood of a September 8 rate hike. That compared with about 68 percent just before the Canadian data.
In June, a robust recovery prompted the Bank of Canada to become the first Group of Seven central bank to raise interest rates since the start of financial crisis. It hiked rates a second time in July, bringing its key rate to 0.75 percent. Its next rate announcement is September 8.
Canada’s services sector, which generated strong jobs growth in June, shed more than 51,000 jobs last month.
Education services produced the biggest decline, losing 65,300 jobs. The government agency said the losses were spread across occupations, including teachers and administrators.
“I think Statistics Canada is struggling with the seasonal adjustments in the education category. This is at least the fourth year in a row where we’ve seen a big drop in education and often times it gets partially reversed in August,” said Doug Porter, deputy chief economist with BMO Capital Markets.
“I don’t think the Bank of Canada tends to overreact too much to these very volatile employment numbers. I think the bigger story here is still that the job market has improved quite a bit over the past year.”
The finance, insurance, real estate and leasing sector also dropped 29,800 jobs, bringing the level of employment down to where it was in July 2009.
The goods-producing sector added 42,000 jobs, boosted by a 28,500 job gain in manufacturing.
The average hourly wage of permanent employees, watched by the Bank of Canada for inflation pressures, was up 2.6 percent in July from a year earlier.
With additional reporting by Jack Reerink and Howaida Sorour in Ottawa, and Ka Yan Ng and John McCrank in Toronto; editing by Peter Galloway