OTTAWA (Reuters) - Canada’s economy added five times more jobs than expected in February in another sign the domestic economy is racing ahead even as exports sag in the wake of the U.S. economic downturn.
Statistics Canada said on Friday that the economy added 43,300 jobs last month, defying market forecasts of a more tepid gain of 8,000 amid signs of softer growth. The unemployment rate remained unchanged at a 33-year low of 5.8 percent.
The news sent the Canadian dollar flying to a one-week high against the U.S. dollar and left economists scratching their heads.
“Mind boggling,” said Derek Burleton, senior economist at Toronto-Dominion Bank. “I‘m obviously a little shocked right now,” he told Reuters.
The sizzling numbers appear to contradict last week’s report showing that annualized economic growth slowed in the fourth-quarter of 2007 to 0.8 percent from 3 percent in the previous quarter and that the economy contracted 0.7 percent in December.
“It seems that the slower the Canadian economy grows, the more workers it needs to hire,” said Avery Shenfeld, senior economist at CIBC World Markets, in a note.
“This simply defies logic, and after being stunned this month, we’ll simply push off our forecast for weaker job gains into March,” he said.
The Bank of Canada chose to ignore the red-hot labor market when it slashed its key interest rate on Tuesday by a half-point to 3.5 percent, arguing that the specter of a protracted U.S. slowdown outweighed any inflationary risk from strong domestic demand.
The bank issued a dovish statement, signaling more rate cuts to come, after the first policy decision since Mark Carney became governor on February 1.
The Canadian dollar moved immediately after the report to US$1.0244, valuing a U.S. dollar at 97.62 Canadian cents, from earlier levels of around US$1.0183, or 98.20 Canadian cents. The currency later eased slightly. Bonds remained higher.
February was the second straight month in which employment gains were stronger than expected. In January, the economy stunned markets by adding 46,400 jobs.
Both times, all the gains came in full-time jobs and in the private sector, although Statscan said most of the advances in the past 12 months came from the public sector.
In February, 49,500 more full-time jobs were created while part-time positions declined by 6,200.
Wage inflation in the year to February reached 4.7 percent for permanent employees, more than twice the rate of consumer inflation. Wages rose 4.9 percent on average for all employees.
But unlike most other major economies, Canada is not worried much about inflation right now and high wage inflation concerns are on the “back burner,” said Paul Ferley, assistant chief economist at the Royal Bank of Canada.
Core inflation, which excludes volatile items and guides central bank rate decisions, dropped in January to its lowest since July 2005 at 1.4 percent.
“I think the priority right now is to make sure that the high costs of capital and weaker U.S. economy playing through exports don’t undermine the economy,” said Ferley.
The one piece of data that surprised nobody was that the manufacturing sector, hit hard by the strong Canadian dollar, shed 23,700 workers in February. That was partially offset by job growth in the construction sector.
The goods-producing sector lost 12,500 jobs while the services sector gained 55,800.
Additional reporting by Frank Pingue in Toronto; Editing by Scott Anderson