Canada Lost 55,200 Jobs in July; Unemployment Fell

By Alexandre Deslongchamps

Aug. 8 (Bloomberg) -- Canadian employers unexpectedly shed the most jobs in 17 years in July as manufacturers responded to slow demand for their goods by trimming payrolls.

Employers fired 55,200 workers, Statistics Canada said today in Ottawa, after a drop of 5,000 the month before. The jobless rate fell to 6.1 percent from 6.2 percent as 74,100 people left the labor force. Economists anticipated 5,000 new jobs and the same jobless rate, according to the median of 22 estimates in Bloomberg surveys.

The economy is sputtering as factories struggle to sell products south of the border because of low U.S. consumer confidence and a Canadian currency that's appreciated about 16 percent in the past three years. The Bank of Canada signaled last month that interest rates will stay put for the foreseeable future, with growth virtually stalled even as inflation exceeds the top of policy makers' target range.

``Labor markets are starting to reflect the weakening in growth that we've been seeing,'' said Paul Ferley, assistant chief economist at Royal Bank of Canada in Toronto. The report ``eliminates some concern out there about possible near-term hikes by the Bank of Canada.''

The currency fell 1.4 percent, the biggest drop this year, to C$1.0683 per U.S. dollar -- the lowest since Aug. 16 of 2007 -- at 10:06 a.m. in Toronto from $1.0531 yesterday. One Canadian dollar buys 93.61 U.S. cents. The currency has dropped 6.48 percent so far this year versus its U.S. counterpart.

Back-to-Back Drops

June-July marked the first period since January 2006 that employers shed workers for two straight months, and the July loss was the biggest since February 1991. Factories fired 32,300 workers in July, led by manufacturers in Ontario, Canada's biggest province and its goods-producing hub.

Owens-Illinois Inc., the world's largest maker of glass containers, said July 29 it will close a factory in Toronto, affecting 430 workers, because of the strong Canadian dollar and rising energy prices.

General Motors Corp. may cut 15 percent of its salaried workforce in the U.S. and Canada by the end of 2008 as the money-losing automaker tries to pare $10 billion a year in costs, people familiar with the plan told Bloomberg News.

Canada lost 7,100 full-time jobs and 48,100 part-time jobs in July, particularly young workers, the statistics agency said. Services-related employment fell by a net 37,300, while goods-producing companies shed a net 17,800 workers.

`Export Drag'

In its last quarterly forecast on July 17, the central bank said growth will slow as an ``export drag'' offsets the domestic spending that's powered expansion in recent years. Policy makers said the economy will grow 1 percent this year, the slowest since 1992 when Canada had its last recession.

The economy shrank in the first quarter for the first time since 2003, dragged down by automobile exports. Gross domestic product contracted at a 0.3 percent annualized rate, Statistics Canada said, and 0.1 percent in May on a month-over-month basis.

Some service companies were hurt by the slower growth. Payrolls for professional, scientific and technical services fell by 15,300 employees and those for business, building and other support services dropped by 30,100, the statistics agency said. Retailers and wholesalers eliminated 33,600 positions.

BCE Inc., the Canadian phone company going private in the biggest leveraged buyout in history, said July 28 it plans to cut about 2,500 management jobs. The cuts equal about 15 percent of the managers, or 6 percent of the total Bell workforce, Montreal-based BCE said in a statement.

Wage Growth

Canadian wage growth also is slowing, gaining 4 percent in July from a year earlier compared with 4.4 percent in June and an 11-year high of 4.9 percent in February. Still, labor costs are rising faster than consumer prices, which gained 3.1 percent in June.

``Overall, this is a weak report, one that will have the market continuing to ponder the possibility of a further ease by the Bank of Canada,'' Avery Shenfeld, an economist with CIBC World Markets in Toronto, said in a note to clients. ``We doubt that outcome, since if, as we expect, energy prices heat up again, inflation will be too high to think about cutting.''

Canada has added a net 227,200 jobs in the past 12 months, even as the jobless rate rose from 6 percent last July, a sign that more people have entered the workforce than found work.

In the U.S., the number of workers filing first-time claims for unemployment benefits unexpectedly rose last week to the highest level in six years, signaling the labor market in the world's biggest economy -- Canada's main trading partner -- continues to weaken.

To contact the reporter on this story: Alexandre Deslongchamps in Ottawa at adeslongcham@bloomberg.net.