OTTAWA (Reuters) - Canada’s economy created more jobs than expected in December after three months of disappointing employment numbers, once again outperforming the United States, where labor market recovery failed to gain momentum.
About 22,000 more Canadians were working in December than in November, primarily because of an inexplicable surge in manufacturing jobs. The unemployment rate held steady at 7.6 percent, according to Statistics Canada’s labor force survey released on Friday.
Markets had expected 17,500 positions to be created in the month and the jobless rate to climb to 7.7 percent. Job growth was flat or weaker than expected in the previous three months.
Canada’s upbeat data contrasts with U.S. December nonfarm payrolls figures, also released on Friday, which showed far fewer jobs were created in the month than expected.
The Statscan report shows steady, gradual jobs recovery but was seen as unlikely to persuade the Bank of Canada to raise interest rates this month. It could signal the bank’s next rate hike will come sooner than expected, however.
“In terms of the Bank of Canada, I think they’ll take some comfort from Canadian labor markets continuing to generate jobs,” said Paul Ferley, assistant chief economist at Royal Bank of Canada.
“But I think it’s probably not strong enough to alter policy. They’ll likely remain on the sidelines, trying to assure the strength is not only sustained but strengthens further going forward,” he said.
The central bank hiked its target lending rate three times last year to 1 percent but has been on pause since September. Canada’s economy, the star performer among the G7 advanced economies during the global recession, is losing some of its shine with the pace of growth and employment slowing.
Most forecasters expect another rate increase at some point in the first half of this year. Chief economists from Canada’s five largest banks on Thursday forecast interest rates would double to 2 percent by year-end.
Markets on Friday were pricing in a 92.2 percent chance the central bank would hold rates steady on January 18, down from 92.7 percent just before the data and from 95 percent on Thursday, according to yields on overnight index swaps tracked by Reuters.
The Canadian dollar firmed after the data to a high of C$0.9942 to the U.S. dollar, or $1.0058, compared with C$0.9964 to the U.S. dollar, or $1.0036 before the release. It later backtracked after the release of the U.S. jobs data.
Unlike the United States, where the job recovery remains slower than desired, Canada has more than recouped all the jobs lost during the recession. Its unemployment rate remains well below that of its southern neighbor, a historical anomaly.
Statscan said the economy added 369,000 jobs during 2010, an increase of 2.2 percent and comparable to the pre-crisis performance of 2007.
By contrast, the U.S. economy created far fewer jobs than expected in December at 103,000, suggesting the Federal Reserve will complete its asset buying program. The unemployment rate, however, dropped to its lowest level in more than 1-1/2 years.
Still, Canada relies heavily on the United States for trade and ultimately needs a healthy economy there if its own economy is to thrive.
Some of the Canadian report’s details suggested underlying strength, with the private sector accounting for most new positions and the number of full-time jobs eclipsing part-time ones.
But it was the 66,000 jump in factory jobs after 18 months of lackluster numbers that left analysts scratching their heads. The auto industry is making a comeback and exporters are coping with a strong Canadian dollar, but such a sudden hiring frenzy seemed implausible to many.
“Really the mysterious man of the hour is manufacturing ... ... In fact, it’s such a big monthly gain that you end up closing out 2010 with more manufacturing jobs than the start of the year, which is not something I think anyone really seriously predicted over the last year,” said Eric Lascelles, chief macro strategist at TD Securities.
Others suspected a statistical anomaly that might reverse itself in January’s report.
“Are we really being asked to believe that manufacturers swing that abruptly in their work force planning in the current environment?” wrote Scotia Capital economist Derek Holt in a note. “My bias is to treat such volatility as sampling issues, and thus I dent the headline gain accordingly.”
The transportation and warehousing and natural resources industries also recorded gains, while the construction industry had its first notable employment decline since July 2009.
The average hourly wage of permanent employees, closely watched by the Bank of Canada for inflation pressure, sped up slightly to 2.3 percent in December from a year earlier and from 2.2 percent in November.
Additional reporting by Ka Yan Ng, Claire Sibonney and Howaida Sorour; editing by Peter Galloway