OTTAWA (Reuters) - Canada's jobs bonanza came to an abrupt halt in May, but the negligible employment gain of 7,700 brought more relief than trepidation to jittery investors, who saw it as evidence the recovery is intact despite a worsening global backdrop.
The figures released by Statistics Canada on Friday, which also showed the unemployment rate holding steady at 7.3 percent, were below a median forecast of 10,000 net new jobs predicted by analysts in a Reuters poll.
Other data showed an unexpected trade deficit, slower housing starts and weak productivity growth, adding to pressure on policy makers as the European debt crisis deepens.
Still, few had thought the outsized employment gains of 82,300 jobs in March and 58,200 in April - the biggest two-month gain in over 30 years - would last. And the six-month average of 28,200 net new jobs monthly, the equivalent of about 260,000 in the much bigger U.S. economy, led analysts to take a glass-half-full view of the job market.
"The fact that we printed a positive was actually a very good sign. We did think that there was a chance that we could slip into negative territory," said Ian Pollick, fixed-income strategist at RBC Capital Markets.
Doug Porter, deputy chief economist at BMO Capital Markets was relieved that the employment report was within a more normal range after several months of volatility, and did not think it would add pressure on the Bank of Canada to postpone interest rate hikes.
"I don't think these numbers will make any impression at all on the Bank of Canada. It doesn't move the needle one iota," he said.
Unlike the United States, Canada's quick recovery from the 2008-09 recession included recouping all the jobs lost by early 2011. But job creation stalled late last year and the data have been extremely volatile in recent months.
The data comes three days after the Bank of Canada said the country's economic momentum was in line with its expectations and signaled intentions to raise its main policy rate from the current 1 percent if the recovery remained intact.
But the central bank also warned of a deepening euro zone crisis and slightly softened its previously hawkish tone on rate hikes.
The Canadian dollar initially weakened after the data to C$1.0358 against the U.S. currency, or 96.54 U.S. cents. It later returned to trade near the C$1.0339 level it stood at before the data.
Overnight index swaps, which trade based on expectations for the central bank's key policy rate, showed that traders reduced bets on a rate cut later this year after the data.
Manufacturing was the sector that created the most jobs in May, while the construction industry and the information, culture and recreation sector laid off the most workers.
But the bulk of the jobs were part-time and private businesses scratched 22,500 workers from their payrolls. Had it not been for a rise in self-employed people, employment might have fallen.
Analysts suggested that the nearly 7,000 public sector jobs might reflect a bolstered Montreal police force, which is contending with months of student protests there. The French-speaking province of Quebec posted the biggest job gains of 14,700.
The wage measure most closely watched by the Bank of Canada showed a jump in hourly wages to 2.9 percent from a year earlier, compared with a 2.4 percent annual gain in April.
Finance Minister Jim Flaherty said that the jobs data points to modest second-quarter economic growth, which is no surprise to Ottawa.
"We weren't starry-eyed when we did the economic planning for the budget," he told reporters in Quebec City.
Flaherty and Prime Minister Stephen Harper spoke openly this week about contingencies in case of a worsening euro crisis.
In another sign of friction in the recovery, Canada unexpectedly slipped back into a trade deficit in April for the first time in six months.
Exports fell 1.2 percent in the month while imports edged up 0.1 percent for a deficit of C$367 million ($356 million), compared with a surplus of C$152 million in March, Statscan said. Analysts had expected a small surplus in April.
Exports of industrial goods and materials - mainly metals and alloys - tumbled 5.8 percent in April.
Exports to the United States, the country's top market, fell for a fourth straight month, narrowing the trade surplus with the neighbor to C$3.8 billion from C$4.5 billion in March.
Labor productivity rose at a slower pace of 0.1 percent in the first quarter, after two straight quarters of 0.7 percent growth.
The result was due to a 0.4 percent increase in the number of hours worked in the quarter, while real gross domestic product of businesses advanced 0.5 percent. Manufacturing and administrative services boosted productivity while the mining and oil and gas industries saw a decline.
Canadian housing starts slowed in May after a red-hot April, coming in at a seasonally-adjusted annualized rate of 211,400, down from 243,800 units in April.
With additional reporting by Alex Paterson in Ottawa and Andrea Hopkins, Claire Sibonney, Jon Cook and Euan Rocha in Toronto; Editing by Jeffrey Hodgson