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Stalled jobs market a reality check for Canada

OTTAWA (Reuters) – Canada‘s job growth slowed in June for a second straight month in a reality check after outsized employment gains earlier this year, firming the market’s view that the central bank won’t act soon on recent hints of a rate hike.

Waning business confidence due to the European debt crisis and a stalled U.S. economy meant Canada generated just 7,300 net new jobs last month, adding to 7,700 in May, according to Statistics Canada data released on Friday.

But May data on building permits pointed to a still-hot housing market, a top concern for the Bank of Canada, even as the pace of purchasing activity fell in June to its lowest level in almost a year.

The June employment increase, though above market forecasts of a 5,000 gain, is within the margin of error for Statscan’s household survey.

Analysts took some comfort from the gains after anticipating some payback for the unsustainable two-month jump of 140,500 jobs in March and April – the biggest in over 30 years.

“This is consistent with fairly decent progress in the Canadian labor market,” said David Tulk, chief Canada macro strategist at TD Securities.

“I think this does speak to some residual momentum in the Canadian economy but perhaps a little bit more caution on the part of firms looking at some of the international headwinds and maybe a sense of domestic fatigue.”

The unemployment rate dipped to 7.2 percent in June from 7.3 percent as fewer people were looking for work, Statscan said.

Canada’s economy and job market bounced back from the 2008-09 recession faster than that of the United States and is set to grow by just over 2 percent this year, thanks largely to perky household spending.

The hiring slowdown in June mirrored that of the United States, where non-farm payrolls expanded by just 80,000 jobs in June, not enough to bring down the country’s 8.2 percent unemployment rate.

The Canadian dollar hit a session high of C$1.0140 to the U.S. dollar after the North American jobs data. It later fell to C$1.0185 to the U.S. dollar, or 98.18 U.S. cents.

Canadian bond prices crept up across the curve and yields dipped.

Hiring in the private sector tanked, but in signs of underlying strength in the economy, all the gains were in full-time positions and hourly wages rose 3.3 percent on the year – the fastest rate since 2009.

Still, there was not enough strength to push the Bank of Canada closer to ending a freeze on rates since September 2010.

“We would have needed either a huge disappointment or a huge gain to really see any movement at all in expectations on the Bank of Canada,” said Blake Jespersen, managing director of foreign exchange sales at BMO Capital Markets.

In contrast to most of its peers, the Canadian central bank has been signaling since April that it may raise its benchmark rate. It softened its hawkish tone somewhat last month, although as recently as June 21 it said higher rates were possible.

Markets are pricing in a small chance of a rate cut this year but most economists still think the next move will be upwards, probably in early 2013.

HOUSING BUBBLE?

The value of building permits issued in Canada jumped 7.4 percent in May from April to its highest in five years, and permits for housing rose a hefty 8.5 percent after four months of decline.

Permits for multifamily dwellings shot up 17.7 percent.

The news does little dispel fears of a bubble in the condominium market in Canada’s largest cities, a fear that prompted the government last month to tighten mortgage rules for the fourth time in four years.

The pace of purchasing activity in the Canadian economy fell to its lowest level in almost a year in June, according to Ivey Purchasing Managers Index data released on Friday.

(Reporting By Louise Egan; Editing by Janet Guttsman)


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