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Rise in unemployment rate confirms economic slowdown

Canada's economy shed jobs for the first time in five months in August, pushing the unemployment rate up a notch to 7.3 per cent in a signal the economy is struggling.

The loss of employment was small — 5,500 jobs — but it was the second consecutive month that jobs growth was virtually non-existent in Canada, after an encouraging start to the year.

The Canadian dollar took an immediate hit, dropping about half a cent to below 101 cents US.

The only good news in the report Friday was that full-time employment rose by 25,700, all in the public sector.

The poor result follows a flat reading that also occurred in the U.S. last month, although Canada's unemployment rate remains about two percentage points lower.

Canada's jobs set-back was unexpected. Economists had pegged a gain of 21,500, but it wasn't much of a surprise given the financial market meltdown and loss of consumer and business confidence that occurred in August.

Economists said in an early reaction that Canadians should prepare for a tough jobs market going forward.

"Jobs momentum has clearly been lost in Canada," said Scotiabank economists in a note to clients.

"It further calls into question the Bank of Canada's (second half of year) optimism as the effects of a global confidence shock work their way through the economic variables."

TD Bank's Derek Burleton noted that the jobs number was not as bleak as the bottom line would suggest, since all the losses were part-time work.

Full-time employment rose, Burleton said.

Still, he said, Canadians should prepare for the unemployment rate to start edging up, predicting it could reach 7.5 per cent or higher by the end of the year.

"Looking through the statistical fog, the underlying trend in Canada's job market is beginning to cool," agreed Bank of Montreal economist Douglas Porter.

Analysts had expected a modest 21,500 pick-up in employment following July's slight gain, in part fuelled by education jobs related to the return of school season in September.

But there were few signs of an education bump, which may come in the September report. Instead, the big pick-up was in the health care and social assistance sector, which gained 50,000 jobs.

Meanwhile, there were significant losses in the key goods producing sectors. Construction fell by 24,000, transportation and warehousing declined by 14,000 and the natural resource industries shed 12,000 workers. Students had a hard time all summer with an unemployment rate of 17.2 per cent, well above the 14 per cent level that existed prior to the recession.

On aggregate, the job losses occurred in the private sector and among part-time workers.

Thanks to robust results in the early part of 2011 when the economy was stronger, Canada's has still managed to create 193,000 jobs this year, the agency said. Over the past 12 months, 223,000 jobs have been added.

"Over this period, full-time employment increased by 2.2 per cent (300,000), part-time work declined 2.3 per cent (77,000), and total actual hours worked rose by 2.6 per cent," Statistics Canada noted.

Earlier this week, Bank of Canada governor Mark Carney warned that the second half of 2011 would be weaker than previously predicted and that the export sector would face difficulties in foreign markets due to decreased demand and the high dollar.

Regionally, there were few dramatic shifts in employment. However, the unemployment rate in Newfoundland jumped 1.8 points to 13.7 per cent, and Quebec's rose 0.4 points to 7.6 per cent, largely due to increases in the number of people looking for work.

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