OTTAWA, June 6 (Reuters) - Downbeat Canadian jobs and productivity data released on Friday showed the economy is still struggling to recover fully despite a strengthening U.S. recovery.
Although Statistics Canada said the economy created a net 25,800 jobs in May, all of them were part-time. Full-time jobs dropped by 29,100, bringing the two-month loss to a round 60,000 positions.
Market analysts on average had forecast a gain of 25,000 jobs. The unemployment rate edged up to 7.0 percent from 6.9 percent in April as more people sought work.
The data confirm the Canadian jobs market has effectively slowed to a crawl over the last nine months.
"It's a labor market that's struggling under mounting fatigue," said David Tulk, chief Canada macro strategist at TD Securities, who noted "a lot of weakness in fulltime" jobs.
Part-time jobs rose by 54,900 in May.
The six-month moving average for employment growth edged up to 3,000 in May from 2,300 in April.
In the 12 months through May, only 85,500 jobs were created, the lowest year-over-year gain since the 75,700 increase in positions recorded in February 2010, when Canada was still mired in the fallout of the financial crisis.
"Certainly the headline number came basically right on expectations. However, one doesn't have to dig too far beneath the surface to discover that this report isn't all the headline is cracked up to be," said Doug Porter, chief economist at BMO Capital Market. "It's a bit soft under the surface."
The Canadian dollar was little changed, preferring to take its lead from a solid U.S. jobs report. The loonie was at C$1.0930 to the greenback, or 91.49 U.S. cents, a tad weaker than Thursday's close of C$1.0929, or 91.50 U.S. cents.
The Bank of Canada, which has kept interest rates at a near record low 1.0 percent since September 2010, says it will not raise them until inflation recovers and the economy sheds some of the slack which built up during and after the recession.
The central bank is likely to defer any interest rate rise until the second half of next year, a Reuters poll showed on May 29.
Separately, Statscan said the labor productivity of Canadian businesses unexpectedly dropped by 0.1 percent in the first quarter of 2014, the first decline for 18 months.
Market analysts had on average expected productivity to remain unchanged from the fourth quarter of 2013. The last drop in productivity was the 0.4 percent decline seen in the third quarter of 2012.
The overall decline was caused by falling productivity in service-producing businesses, which dropped by 0.4 percent from the fourth quarter. This more than offset the 0.8 percent increase recorded by goods-producing businesses. (Editing by W Simon)