OTTAWA (Reuters) - Canada’s economy showed mixed signs in July, with jobs being added and the unemployment rate falling to the lowest since December 2008, but with the pace of purchasing managers’ activity plunging.
The statistics released on Friday provide one of the first glimpses into the third quarter, after a sickly second quarter, with markets looking for any underlying strength amidst current turmoil.
Statistics Canada said that 7,100 new jobs had been added and the jobless rate had fallen to 7.2 percent in July from 7.4 percent in June.
While a large part of change in the unemployment rate was due to people dropping out of the labor market, the quality of jobs improved, shifting from part time to full time and from public sector to private sector.
“Looking beyond the so-so headline, almost every detail in the (jobs) report is quite strong. We saw solid full-time gains, the private sector accounted for all the job gains and surprisingly the unemployment rate fell,” BMO Capital Markets deputy chief economist Douglas Porter said.
“Overall, I would actually characterize this as good news, even though the headline employment number was a bit below consensus. I think the details are unambiguously better than the headline would suggest.”
The median forecast in a Reuters survey of analysts was for 15,000 new jobs and a 7.4 percent unemployment rate. July saw 25,500 new full-time positions while 18,400 part-time ones were lost.
The recession did not hit Canada as hard as the United States. The Canadian rate had peaked at 8.7 percent in August 2009; the U.S. rate has only fallen to 9.1 percent in July this year from 9.2 percent and still is almost two points higher than in Canada. Markets were nonetheless briefly encouraged by the 117,000 increase in nonfarm payrolls in the United States.
The jobs data was partly offset by a sharp decline in the Ivey Purchasing Managers Index, which measures purchasing activity by executives in the private and public sector.
The seasonally adjusted index fell to 46.8 in July from 59.9 in June, and the unadjusted number fell to 45.4 from 68.2. A reading below 50 indicates that activity declined from the preceding month.
“Suffice to say, this (Ivey) report in conjunction with the ongoing turmoil in financial markets does little to support the case for a sustained rebound in Q3 (the third quarter),” said David Tulk, chief Canada macro strategist at TD Securities.
In another data point, the value of building permits in June rose 2.1 percent from May after a 20.9 percent jump in that month.
Analysts said the Bank of Canada would be keeping only one eye on the past statistics with another on jitters in the equity markets over European and U.S. debt problems.
The central bank hiked interest rates three times in 2010, paused in September due to global economic uncertainty, and then was widely expected to boost rates again later this year.
But the financial market turmoil of recent days has clouded the outlook.
Overnight index swaps, which trade based on expectations for the bank’s key policy rate, show traders are now actually pricing in the prospect of a rate cut later this year rather than a tightening.
“Unfortunately, things have changed a lot in recent times so the market reaction (to the jobs data) is very muted. At least before this recent bout hit you could say things were in decent shape,” said Mark Chandler, head of Canadian fixed income and currency strategy at RBC Capital Markets.
“The Bank of Canada is doing what we’re all doing -- watching equity markets. They’re firmly going to do nothing at the moment and wait to see how this develops.”
Additional reporting by Euan Rocha, Claire Sibonney and Ka Yan Ng in Toronto; Editing by Jeffrey Hodgson