Canada gained 17,500 jobs in December, but the jobless rate rose and the new positions were all part time, further evidence its post-recession hiring surge has ended even as U.S. jobs growth finally picks up the pace.
Statistics Canada data on Friday showed that the new jobs were not enough to offset the previous two months of declines.
The unemployment rate rose to its highest level since April despite the rise in employment, climbing to 7.5 percent from November's 7.4 percent, as more people participated in the job market.
With unemployment rates moving up and only modest gains in employment, that clearly provides further reason for the Bank of Canada to hold interest rates at current stimulative levels, said RBC assistant chief economist Paul Ferley.
In the United States, the jobless rate fell to a near three-year low of 8.5 percent from 8.7 percent in November; nonfarm payrolls were up 200,000, well above expectations.
Canada's economy outperformed the United States both during and after the global financial crisis, with Canada recovering all of the jobs lost in the recession. But the reports on Friday suggested Canada's relative strength could be waning.
Derek Holt at Scotia Capital noted that in Canada the number of employees on payrolls declined, with the self-employed category picking up the slack.
This continues the trend towards disconcerting Canadian jobs reports, and we've definitely lost momentum in Canadian jobs markets, he said.
The economy ended the year with employment growth of 1.2 percent, or 199,000 jobs, all of them full-time. But the second half of the year has shown only 7,000 new positions.
In December, full-time employment fell by 25,500 while part-time rose by 43,100. In October and November, the economy shed 72,600 positions, 37,100 of them full-time.
The struggling manufacturing sector racked up its biggest gain in a year, adding 30,400 jobs after losses of 79,000 in the previous three months. Manufacturing ended the year down 50,000 jobs from 12 months earlier.
Bank of America-Merrill Lynch economist Sheryl King said research going back to the 1990s shows that when the three-month trend in employment goes negative, the Bank of Canada has always cut rates, though not necessarily right away.
We've lost 55,000 jobs in the last 3 months. We've never lost that many jobs in a 3-month period outside of a recession, she said.
The next move from the Bank of Canada is going to be an ease, she added, predicting however that the bank may stay on the sidelines for now because of improving U.S. numbers and because Europe has not deteriorated significantly.
The yield on the two-year Canadian government bond, which is especially sensitive to Bank of Canada interest rate moves, slipped to 0.951 percent from 0.971 percent just before the release.
Overnight index swaps, which trade based on expectations for the central bank's key policy rate, showed that traders priced in higher odds of rate cut in the second half of 2012.
After the Canadian data, the Canadian dollar weakened to C$1.0219 to the U.S. dollar, or 97.86 U.S. cents, from about C$1.0179 before the release. It quickly reversed to C$1.0185 when the strong U.S. jobs numbers were reported, but then slid to C$1.0242 at 9:56 a.m. EST.