February 10, 2017 / 1:47 PM / in 8 months

UPDATE 2-Service sector drives stronger Canada job growth in January

(Adds details, background, economist comments, C$ reaction, byline)

By Leah Schnurr

OTTAWA, Feb 10 (Reuters) - Canadian job growth unexpectedly surged in January as hiring in the service sector helped the labor market build on its momentum from the latter part of 2016, suggesting the economy was finding its footing.

Canada added 48,300 jobs last month, Statistics Canada said on Friday, exceeding economists’ expectations for employment growth to be unchanged.

Full-time positions increased by 15,800. Although that was outpaced by a 32,400 increase in part-time work, economists were encouraged by the decline in the unemployment rate to 6.8 percent, even as the participation rate edged up.

Canada saw strong jobs growth in the second half of 2016. While much of that came from part-time work, suggesting a deterioration in job quality, economists expect full-time work to be stronger this year.

Indeed, the number of full-time jobs has increased by 141,000 since last August, Statistics Canada said.

“We’ve had a very good run here from employment and I think it’s sending a pretty convincing signal that the economy is starting to improve,” said Doug Porter, chief economist at BMO Capital Markets.

The Canadian dollar strengthened against the greenback immediately following the release.

The Canadian economy was hurt by lower oil prices that forced the Bank of Canada to cut rates twice in 2015, but policymakers believe the worst of the commodity shock is past.

While the report was not likely to move the Bank of Canada off the sidelines, the figures could reduce the risk of another interest rate cut, economists said.

“The continued strength in the labor market data means Governor Poloz will find it harder convincing markets that a rate cut is still on the table,” said Andrew Grantham, senior economist at CIBC Capital Markets.

The central bank has said there is significant labor market slack underlying the unemployment rate. The bank is expected to hold rates at 0.50 percent into next year.

The service sector added 42,600 jobs in January, with a 20,500 increase in the finance, insurance and real estate industry. Hiring in the transportation and warehousing, and business and support services sectors also rose.

The goods sector created just 5,600 jobs last month, with a 5,200 increase in construction. The natural resources sector added 2,500 positions.

Average hourly wages rose 1 from last January, but average weekly hours for permanent employees declined 0.6 percent as part-time workers saw fewer hours.

Additional reporting by Susan Taylor in Toronto; Editing by Bernadette Baum

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