WRAPUP 3-Healthy Canada jobs, factory data spur optimism on economy

Fri Aug 15, 2014 2:31pm EDT

(Adds finance minister saying he is encouraged by data, paras 4-5)

By David Ljunggren

OTTAWA Aug 15 (Reuters) - Canada reported unexpectedly healthy jobs and manufacturing sales data on Friday, boosting market optimism that the sluggish economy might finally be starting to accelerate.

Despite a recovery in the United States, Canada's main trading partner, the Canadian economy has been creating few jobs and has been operating well below full capacity.

Revised Statistics Canada data on Friday showed 41,700 jobs were created in July. The unemployment rate dropped to 7.0 percent from 7.1 percent in June.

"I am encouraged by that number ... I remain cautiously optimistic, but work has to be done," Finance Minister Joe Oliver told reporters in Winnipeg.

Oliver cited a 0.9 percent increase in the number of hours worked in July from June as well as the healthy pace of job creation in the United States.

Market analysts had forecast a gain of 20,000 jobs. Statscan had reported on Aug 8 that just 200 new positions had been created in July, but later withdrew that data, citing processing errors.

"Overall, this does suggest that Canada's labor market is improving after hitting a soft patch in the first half of the year. That's now reflecting stronger economic growth," said Sal Guatieri, a senior economist at BMO Capital Markets.

The Bank of Canada has kept its key interest rate at near-record lows since September 2010 to try to stimulate growth, and says it will not consider an increase until the economy shows signs of a sustained recovery.

"If we see consecutive gains in employment, certainly along this order, that would change the tone at the Bank of Canada," Guatieri told Reuters.

After the release of the jobs data, the Canadian dollar briefly rose as high as C$1.0869 to the greenback, or 92.00 U.S. cents, stronger than Thursday's close of C$1.0903, or 91.72 U.S. cents.

The 12-month employment gain was only 156,800 jobs, or 0.9 percent, while the six-month moving average for employment growth rose to 10,900 in July from 8,800 in June.

The labor force participation rate remained at 66.1 percent, the lowest since the 66.0 percent seen in November 2001.

Paul Ferley, assistant chief economist at Royal Bank of Canada, said the revised July data suggests very different employment conditions than did the initial release.

"It's showing a more encouraging picture, though we're not out of the woods yet," he said.

Statscan said 59,900 part-time positions were created in July, while full-time jobs dropped by 18,100.

Separately, it said the value of factory sales rose 0.6 percent in June from May.

The increase, the fifth in six months, was greater than the 0.4 percent advance forecast by analysts. Statscan revised May's month-on-month gain to 1.7 percent from 1.6 percent.

Camilla Sutton, chief currency strategist at Scotiabank, said the combined data were promising.

"Job gains are good, and an unemployment rate that is falling with a stable participation rate is also encouraging," she told Reuters.

"You combine in manufacturing sales ... that too is fairly encouraging in terms of what's transpired in the domestic economy."

(Additional reporting by Leah Schnurr, Allison Martell and Solarina Ho in Toronto and Rod Nickel in Winnipeg; Editing by Bernadette Baum; and Peter Galloway)

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