Canada's job market once again beat expectations to post strong gains in February, but few were predicting an economic comeback just yet after the slowest two quarters of growth since the 2008-09 recession. Employment rebounded from January's losses with the addition of 50,700 net new positions in February, well above the 8,000 expected by market players.
Most of the gains were in the services industries while manufacturers saw hefty layoffs for the second straight month. The Statistics Canada data, released on Friday, also showed the jobless rate stayed the same at 7.0 percent as more people participated in the labour market.
But the data, based on interviews with households, is very volatile from month to month and analysts have noted that the outsized job growth in the second half of 2012 bore little relation to economic growth which slowed to a crawl. "It would be difficult to see job gains on this order going forward, so we should see a pullback in coming months," said Sal Guatieri, senior economist at BMO Capital Markets.
On average, some 29,000 jobs were created a month over the past six months. Indeed, financial markets welcomed the news which coincided with an unexpectedly sturdy increase in US hiring in February and the lowest US unemployment rate in four years. The Canadian dollar strengthened to a one-week high after the strong Canadian and US employment data. The currency rose to C$1.0234 to the greenback, or 97.71 US cents, soon after the employment data from C$1.0288 just before the release. It later pared the gains slightly to C$1.0262.
Unlike the US, Canada had already recovered all the jobs lost during the global downturn of 2008 by early 2011 and in the past 12 months it added another 336,000. But the economy has struggled to gain further traction in recent months. Exports remain weak and a steep discount on the price of Canadian oil is cutting into the Conservative government's revenues as it prepares its next budget.
Most policy makers insist that 2013 looks brighter. The Bank of Canada expects annualised growth of 2.3 percent in the first quarter versus 0.6 percent in the fourth. The central bank signalled this week it is in no rush to raise interest rates after a prolonged pause. It still said its next move would be a hike rather than a cut.
"The Bank (of Canada) is going to be focused on the evolution of developments that are taking place in the housing sector and of course inflation is still looking to be quite subdued ... with a benign inflation backdrop there still isn't any urgency for them to begin lifting rates," said Mazen Issa, macro strategist at TD Securities. Overnight index swaps, which trade based on expectations for the central bank's key policy rate, showed that after the data, traders trimmed their already-small bets on a rate cut in late 2013.
There was fresh evidence on Friday that Canada's recently booming housing market, a top concern for the government in Ottawa, was cooling. Housing starts climbed in February from January, the Canada Mortgage and Housing Corp said, but the six-month trend level showed a continuation of a downward slope that began in the middle of 2012 when the market peaked.
The labor productivity of Canadian businesses edged up 0.1 percent in the fourth quarter after two consecutive declines, Statscan said. But overall in 2012, productivity also increased by a paltry 0.1 percent compared with a 0.9 percent gain in the United States.