Job gain hopes dashed in February

Job gain hopes dashed in February

OTTAWA - Canada's economy delivered lacklustre job growth in February after robust gains in January, disappointing markets and giving the Bank of Canada plenty of wiggle room before hiking interest rates again.

Statistics Canada said on Friday net employment gains in the month were a modest 15,100, below market forecasts of a 21,000 increase.

The report dashed hopes that hiring momentum in the previous two months would persist. Net job gains were 69,200 in January and 30,400 in December.

The February jobless rate was unchanged at 7.8%, versus the 7.7% forecasts by analysts in a Reuters poll.

The report knocked the Canadian dollar to a near two-week low and prompted money market and bond traders to scale back rate-hike expectations.

"The labour market is not going to create any further inflationary pressure, either coming from wage [gains] or the general strength in the labour markets," said Sebastien Lavoie, assistant chief economist at Laurentian Bank Securities.

"It gives a bit more breathing room for the bank to stay on the sidelines especially since all the risks out there are quite elevated."

The average hourly wage of permanent employees, which is closely watched by the Bank of Canada for inflation pressures, rose 2.5% from February 2010, up from the 2.3% year-over-year rate in both January and December.

The central bank has held its overnight lending target at 1% since September after three increases, and has cautioned that the red-hot Canadian dollar is hindering exports and restraining the recovery.

A Reuters survey of market players before the bank's March 1 rate decision pointed to May 31 as the most likely date of the next hike.

The market is pricing in a 99.12% chance the bank will stay on hold on April 12, up from 91.91% before the jobs data, according to overnight index swaps, which trade based on expectations for the key policy rate.

Canada has recovered jobs lost during the recession faster than the United States, but the February data bucked that trend. U.S. employers hired workers at the fastest pace in nine months in February, a report there showed.

Still, Canada has had five straight months of employment gains and has churned out an average of 40,000 jobs per month since December. In February, the few jobs added were generated by a broad spectrum of industries.

"It wasn't a uniformly weak report. The best way to describe the report would be underwhelming," said Doug Porter, deputy chief economist at BMO Capital Markets.

The Canadian dollar fell as low as US$1.0201, from US$1.0238, shortly before the data. The Canadian dollar was already weakening ahead of the jobs data after a massive earthquake and tsunami hit Japan.

Paul Ferley, assistant chief economist at Royal Bank of Canada, expressed disappointment that the job market was skewed toward part-time jobs, which grew while full-time positions fell in the month.