• Canada's job-creation engine stalled in July, as 9,300 jobs on net were eliminated.
• There was a massive 139,000 loss in full-time employment, which was offset by a 129,700 gain in part-time employment—this huge shift in the mix of jobs will exert a significant drag on wages and income growth during the third quarter.
• The negative turnaround in the jobs outlook resulted in a 0.1-percentage-point increase in the unemployment rate to 8.0%.
• Overall, there were small losses in both private- and public-sector employment.
• The goods-producing sector added 42,000 jobs in July, the largest monthly gain in almost a year, but this was more than offset by sharp declines in services.
• About 394,000 jobs have been created since the recovery started, but 37% of the total has been in the broad public sector, and 25% in construction.
• The employment report suggests that the Canadian economic recovery is losing considerable momentum—a wide range of indicators now point in the direction of a significant slowdown, including the July Ivey index, which showed a second consecutive month of fairly steep declines.
• The outlook for overall economic growth, and employment growth, during the second half of 2010 is sluggish, at best.
• In this environment, it would be prudent for the Bank of Canada to keep interest rates steady at next month's monetary policy announcement.

Outlook

Payback finally came in the month of July, as 9,300 Canadian jobs were lost. This should not come as a total surprise, given the sharp slowdown in Canada's economic growth during the second quarter of 2010, and the fact that relatively sluggish growth is expected to continue during the second half of 2010.

But what is particularly disturbing about this report was the stunning 139,000 loss in full-time employment, which was largely offset by a 129,700 gain in part-time employment. Part-time employment as a share of total employment is at an all-time high (data going back to 1976) of 20%. This suggests a significant slowdown in wage and income growth during the third quarter.

On a positive note, the goods-producing sector added 42,000 jobs in the month, the largest monthly gain in almost a year. The good news is that 28,500 manufacturing jobs were added to payrolls, leading the overall sector's advance. Construction employment was about flat.

However, services-producing jobs dropped by a very sharp 51,300, with the largest setbacks occurring in educational services (down 65,300), finance, insurance, and real estate (down 29,800), and trade (down 14,400). There were modest gains in public administration (up 18,700), health care (up 13,700), information, culture, and recreation (up 12,400), and transportation (up 12,100).

Reversing some of the gains in the previous month, employment in Ontario and Quebec declined by 15,000 and 20,900, respectively. In contrast, Alberta and British Columbia had decent job gains. Saskatchewan now boasts the lowest unemployment rate among the provinces, at 5.1%.

About 394,000 jobs have been created since the recovery started, but 37% of the total has been in the broad public sector, and 25% in construction. A major share of the job gains are in the public sector, not the private sector. In some provinces, though, a very tight fiscal situation is starting to have a large negative impact on employment, as evidenced by the loss of 65,300 education jobs in July.

The employment-generation engine has stalled, as the Canadian economy is now downshifting fairly abruptly. Given the relatively weak U.S. growth prospects, a much weaker Canadian housing market, declining momentum in the manufacturing sector, and fiscal drag from the implementation of the HST, we expect that job growth will be relatively sluggish for a period of time.