OTTAWA -- The Canadian economy continued to add jobs in March, although at a softer pace compared to market expectations.
The results pulled down the Canadian dollar, which prior to the data release was trading above US$1.
Statistics Canada said Friday the economy added 17,900 jobs, leaving the unemployment rate at 8.2%. However, Bay Street economists had expected a gain of 26,000 jobs. The goods-producing sector accounted for most of the gains, adding 40,000 to its payroll in the month, led by the construction and natural resources sectors.
With the March data, the Canadian economy has now added 176,000 people to payrolls since July, the data agency said.
"That's a job market recovery on par with only Australia as most other economies can only dream of job gains like this," economists at Scotia Capital said in a note to clients.
Still, not everyone was thrilled with the data – most notably currency traders. The Canadian dollar had run up just beyond parity with the U.S. currency ahead of the employment data, but then tumbled sharply – to as low as US99.17¢ -- once it was known that job gains were not as robust as expected.
David Watt, senior fixed-income and currency strategist at RBC Capital Markets, said there was anticipation in foreign-exchange markets that the employment data would exceed expectations, prompting an overnight rally. Some market players say traders were looking for a payroll gain of up to 50,000.
"The data cleaned out all the people who punted on the belief of strong job growth," he said.
The loonie was trading at in the US99.55¢ range as of roughly 9 am ET, which is down roughly 20 basis points from Thursday's close.
A closer look at the jobs data suggest private-sector job growth was solid at 42,400, while the public sector shed 20,600 positions. All of the gains were in part-time jobs (32,200), while full-time employment dropped 14,200. Also, average hourly wages grew 2.2% year-over-year, only a tad above the most recent reading of core inflation, 2.1%.
Despite the below consensus gain, Canadian employment has risen in the first three months of 2010, the best string since late 2008, said Benjamin Reitzes, economist at BMO Capital Markets. While employment remains 1.4% below the late-2007 peak, it is slightly above year ago levels.
"Canada's recovery continues to gain steam, and these figures should keep the Bank of Canada on track for a July start to rate hikes," he said in a note.
Others were not so keen, suggesting the strong dollar is beginning to rear its impact. Erin Weir, economist with the United Steelworkers, said job growth was mostly from construction, "a classic non-traded industry," and natural resources, where higher commodity prices and the at-par loonie go hand in hand.
"Perhaps not surprisingly, industries vulnerable to the higher loonie underperformed industries insulated from exchange rates," he said.
Despite the soft jobs data, the Canadian economy has been on a roll. GDP data for January came in stronger than expected, prompting economists to bump up their forecasts for the first-quarter to roughly 5% expansion on an annualized basis. The Bank of Canada has projected first-quarter growth of 3.5%, but that will likely be upgraded as well when the central bank releases its latest economic outlook on April 22.
In the meantime, the central bank is set to release its business outlook survey on Monday, which might provide further clues on inflation expectations and whether companies plan to crank up production.
