UPDATE 2-Canada economy creates surge of jobs in June

* Economy adds 93,200 jobs vs 15,000 forecast

* Unemployment rate drops to 7.9 pct from 8.1 pct

* Services gain while goods sector sheds workers

* Rate hike on July 20 seen as more likely
(Adds analysts, market reaction, details)

By Louise Egan

OTTAWA, July 9 (BestGrowthStock) – Canada’s economy created far
more jobs than expected in June in a surprising sign of
strength after a raft of discouraging data, fueling
expectations the central bank will hike interest rates again
this month.

Statistics Canada said on Friday employment surged by
93,200 in June, adding to gains to nearly make up for the
417,000 jobs lost during the country’s recession.

Analysts in a Reuters poll had predicted an increase of
15,000 jobs after a moderate gain in May of 24,700 positions.

The unemployment rate in June fell unexpectedly to 7.9
percent from 8.1 percent, the lowest since January 2009 but
still well above the pre-recession level of 6.2 percent.

Rising employment increases the chance the Bank of Canada
will raise its key interest rate on July 20 for a second time
in a row, analysts said.

“I think it just reinforces our call that they are going to
go 25 basis points,” said Benjamin Reitzes, economist at BMO
Capital Markets.

“While the GDP numbers for April weren’t that great, the
ongoing strong job numbers just give you more encouragement
that the ongoing Canadian growth remains solid, and I guess
that means that extremely low rates aren’t necessary as maybe
they were a year ago,” he said.

The bank raised rates on June 1 to 0.5 percent from an
emergency low of 0.25 percent, becoming the first among the
Group of Seven industrialized nations to start tightening
monetary policy after the financial crisis.

Yields on overnight index swaps, which trade based on
expectations for the Bank of Canada’s key policy rate, jumped
after the report. The market is pricing in an 86 percent
likelihood of a July 20 rate hike, compared with about 68
percent just before the jobs data. (BOCWATCH: )

The Canadian dollar (CAD=D4: ) surged about 1 percent to its
strongest value since late June after the data, reaching
C$1.0340, or 96.71 U.S. cents.

WAGE PRESSURES EASING

The jobs report also showed wage pressures were easing,
which could give the Bank of Canada more leeway to gradually
raise rates. The average hourly wage of permanent employees,
watched by the Bank of Canada for inflation pressure, rose 2
percent in June from a year earlier, down from the 2.7 percent
year-on-year increase recorded in May.

Tom Nakamura, fixed income portfolio manager at AGF
Investments, said the drop in hourly earnings “suggests that
the Bank has some time, but we know employment data is somewhat
lagging in terms of the economy and wages would also lag.”

Services industries did all the hiring in June, with retail
and wholesale trade leading the way.

Layoffs in manufacturing exerted a drag on the
goods-producing sector. Factories shed 14,000 workers in June
and employment in that sector remains 11.9 percent below
pre-recession levels.

The Organization for Economic Co-operation and Development
(OECD) forecast in a report on Wednesday that the Canadian
jobless rate will drop to 7 percent by the end of next year.

The Paris-based body said the country’s long-term
unemployment rate — a measure of those without work for 12
months or more — doubled as a percentage of the labor force to
8 percent in 2009. However, that is far lower than the OECD
average of nearly one in four.
(Additional reporting by Toronto treasury team; Editing by
Padraic Cassidy)

UPDATE 2-Canada economy creates surge of jobs in June