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While Bank of Canada governor Mark Carney once again told investors this week the central bank continues to eye rate hikes, Friday’s worse-than-expected jobs report may force him to temper his hawkish outlook, according to economists.
The Canadian economy shed 30,400 jobs in July, coming after two months of modest employment gains of about 7,000 jobs -- suggesting that the slowdown facing the global economy is beginning to impact Canada.
The unemployment rate ticked up to 7.3 percent in July from 7.2 percent in June -- the same level it was last year and marking the first time in more than two years that the jobless rate did not dip below its year-ago level.
“Uncertainty regarding the slowing global economy and increasing likelihood of a relapse in commodity prices as a result are likely to dampen business employment intentions,” David Madani, Canada economist at Capital Economics.
Madani expects a slowing global economy and weaker commodity prices will weigh on the Canadian labour market and push the unemployment rate to 7.5 percent by the end of the year.
But economists also say that the figures, while throwing cold water on any imminent moves by the Bank of Canada, aren’t as bad as the headline number suggests. All of the job losses were part-time positions, which fell 51,600 in July, while full-time employment rose by 21,300.
Other details were also positive, such as the 0.2-percent rise in total hours worked and the 3.9-percent annual increase in hourly wages, up from the 3.3-annual wage increase reported in June.
The job losses were largely spread across the economy. The public sector shed 13,500 jobs as governments continue to repair their balance sheets, while retailers and wholesales cut 30,000 positions.
Resources and manufacturing -- which were both recently signs of strength -- shed 8,900 and 18,400 jobs, respectively, in July.
The finance, insurance and real estate sectors added 19,200 positions, while the construction industry contributed 10,700 jobs, though economists warn that those positions may not be sustainable if the real estate market continues to cool.
The jobs figure puts Mark Carney in a tight spot, after he gave interviews this week in London saying the economy was “almost back at full capacity” and the country’s financial system was “firing on all cylinders.”
“While we are not expecting any further accommodations from the Bank of Canada, we also treat Governor Carney's persistent warning of the possibility of lifting rate before 2013 as simply a place holder and not likely to happen,” Adrian K. Miller, director of global markets strategy at GMP Securities, said in a note to clients. “Instead we maintain out view that the Bank of Canada's monetary policy should remain on hold until first quarter of 2013.”
Other economists say that the biggest factor in determining when to hike interest rates will be the fate of the global economy, not what happens in Canada.
“Looking through the volatility, the labour market is providing sufficient support for households to spend and service their debt,” says Dawn Desjardins, assistant chief economist at RBC Economics. “Against this backdrop, the Bank will maintain the overnight rate at 1 percent and its bias to reduce the amount of stimulus, yet this is only likely to occur when the risks to the global economy have eased.”
The weak jobs report comes less than a month after the Bank of Canada maintained its benchmark rate at one percent -- the 15th consecutive time it’s done so -- and lowered its growth forecasts.
It now expects the economy to grow 2.1 percent in 2012, below its previous forecast of 2.4 percent. It also lowered its forecast for 2013 to 2.3 percent from 2.4 percent.