‘Outright decline’ a risk for Canada’s labour market as job gains seen hitting soft patch

OTTAWA — Canada’s labour market likely came back to earth in January after gravity-defying job gains in the final months of 2012, with analysts predicting almost no new hiring in the month and a rise in the unemployment rate.

The average forecast in a Reuters poll of market players was for 5,000 net new jobs in December compared with 31,200 in December. Statistics Canada considers that a flat reading and well within the margin of error for its household survey.

Analysts see the unemployment rate ticking up to 7.2% from 7.1%.

The soft patch would follow surprisingly strong job gains in three of the four prior months, which have puzzled economists because of other signs of a slowing economy.

“The Canadian economy may be reaching a point where these lofty job numbers might downshift into something more moderate, and even the possibility of outright decline is a risk,” said Jonathan Basile, director of economics at Credit Suisse in New York.

Canada’s economy has long recovered from the 2008-09 recession but growth and inflation have been softer than anticipated, leading the central bank to delay its plans to raise interest rates.

Employment, which tends to lag other indicators, will start to reflect that lackluster performance at the start of 2013, economists say.

“We expect some kind of payback in January. A decline is likely in part-time work as temporary holiday hiring came to an end,” said Arlene Kish, economist at IHS Global Insight.

If the forecast is accurate, the average monthly jobs growth would be 30,800 in the Nov-Jan period, down from 33,100 in the fourth quarter.

One big clue of a possible employment downturn was the sharp decline in the employment index of the Ivey Purchasing Managers Index in December.

Also, considerably fewer companies reported labor shortages in the fourth quarter than in the third, according to the Bank of Canada’s latest business survey.

The cooling housing market also points to fewer construction jobs, while employers may also be reluctant to hire amid slowing profit growth.

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