WRAPUP 2-Canadian jobs, purchasing data point to recovery

* Economy added 27,100 jobs but unemployment rate rose

* All of the jobs created were part-time positions

* Ivey purchasing index rose for third month in row

* Data seen as sign that economy is recovering

* Canadian dollar jumps on news (Adds reaction from finance minister, union, rates poll)

By David Ljunggren

OTTAWA, Sept 4 (Reuters) - Canada unexpectedly added jobs in August while purchasing by businesses grew at a faster pace than forecast, providing more evidence that the economy was starting to recover from its worst recession in decades.

The Canadian economy created 27,100 jobs last month, Statistics Canada said on Friday, compared with a median forecast of 10,000 job losses, according to economists in a Reuters survey.

The unemployment rate, however, rose to an 11-1/2 year high of 8.7 percent from 8.6 percent in July as more people entered the labor market. That was the highest jobless rate since the 8.8 percent posted in January 1998.

“It’s a surprisingly solid result, but certainly the details are not quite as impressive as the headline would suggest,” said Doug Porter, economist at BMO Capital Markets. “But that being said, nevertheless, I think it fits in very nicely with the story that the Canadian economy is beginning to recover.”

The jobs data boosted the Canadian dollar CAD=CAD=D3 to its highest in a week against the U.S. dollar, while Toronto's main stock index .GSPTSE rose modestly, held back by soft gold prices.


Prime Minister Stephen Harper and Finance Minister Jim Flaherty have said recently they are seeing signs that the worst of the global economic crisis is over for Canada, while warning of more job losses to come this year.

“The unemployment today was relatively stable ... It’s about a full percentage point below the unemployment rate in the United States, which is unusual,” Flaherty told reporters in London, England.

Statscan said this week that gross domestic product grew 0.1 percent in June after 10 months of decline.

Adding to the favorable news was a report that showed purchasing by Canadian businesses expanded for a third straight month in August, and at a faster pace than had been expected.

The Ivey Purchasing Managers Index rose to 55.7 in August from 51.8 in July. Analysts had forecast a reading of 54 according to a Reuters survey. A reading of more than 50 means purchasing increased.

Even though signs of an improving economy are emerging, analysts doubted whether the jobless data would influence the Bank of Canada’s interest-rate stance. The bank has pledged to hold benchmark rates at a record low of 0.25 percent at least through June 2010 as long as inflation stays in check.

“The market will think that it has a bit of indication in terms of the early rate hike perspective, but the bank is firmly on the page that the domestic economy is reasonably resilient,” said Scotia Capital economist Derek Holt.

The bank’s “concern is more oriented toward the external economy and ongoing trade weakness. This report doesn’t do anything to change those risks.”

A Reuters poll of Canadian primary dealers on Friday showed most felt the central bank would stick to its pledge on rates. [CA/POLL]

Statistics Canada said the growth in employment reflected a rise in part-time and private-sector positions. The economy lost 3,500 full-time jobs and gained 30,600 part-time jobs.

“The fact that the unemployment rate continues to rise has a bit of a mixed message, as the initial interpretation is negative, but suggests that workers are slowly becoming more encouraged by better prospects in the job market,” said TD Securities senior economics strategist Charmaine Buskas.

Employment in the hard-hit manufacturing sector fell by 17,300 jobs from July. The sector has shed 231,300 positions since August 2008.

The United Steelworkers Union said there was little evidence of a sustained recovery in employment.

“Even after such a recovery begins, unemployment will continue rising as Canada’s population grows and formerly discouraged workers return to the labour force,” union economist Erin Weir said in a statement.

The jobs data boosted the Canadian dollar CAD= to as high as C$1.0824 to the U.S. unit, or 92.39 U.S. cents, up from C$1.0969, or 91.17 U.S. cents, just before the report. (Additional reporting by Frank Pingue and Ka Yan Ng in Toronto and Louise Egan in London; Editing by Frank McGurty and Jeffrey Hodgson)