OTTAWA - Canada's economy unexpectedly shed 9,300 jobs in July, the first month it failed to create any this year, suggesting the country's recovery from the recession is starting to cool.

Statistics Canada said that a loss of 139,000 in full-time employment positions was not quite offset by a 129,700 jump in part-time jobs.

Analysts in a Reuters poll had predicted an increase of 15,000 jobs after a strong gain of 93,200 in June. It was the first time the economy dropped jobs since losing 29,300 in December.

"The composition is not favorable with a huge drop in full time employment. However, it's one of those reports where you have to put it in context in terms of what we've been seeing in previous months," said Paul Ferley, assistant chief economist at Royal Bank of Canada.

"I view July as a bit of a payback."

The unemployment rate rose unexpectedly to 8.0 percent from 7.9 percent.

The Canadian dollar immediately weakened following the data, hitting a low of C$1.0246, or 97.60 U.S. cents. It was trading at C$1.02 just before the figures.

The data suggested the Bank of Canada may be less likely to raise interest rates next month.

Yields on overnight index swaps, which trade based on expectations for the Bank of Canada's key policy rate, showed the market is pricing in a 62.6 percent likelihood of a September 8 rate hike. This compared with about 68 percent just before the data.

Canada's services sector, which generated strong jobs growth in June, shed more than 51,000 jobs.

Education services produced the biggest decline, losing 65,300 jobs. The government agency said the losses were spread across occupations, including teachers and administrators.

"I think Statistics Canada is struggling with the seasonal adjustments in the education category. This is at least the fourth year in a row where we've seen a big drop in education and often times it gets partially reversed in August," said Doug Porter, deputy chief economist with BMO Capital Markets.

"I don't think it changes the bigger picture. I don't think the Bank of Canada tends to overreact too much to these very volatile employment numbers. I think the bigger story here is still that the job market has improved quite a bit over the past year."

The finance, insurance, real estate and leasing sector also dropped 29,800 jobs, bringing the level of employment down to where it was in July 2009.

The goods-producing sector added 42,000 jobs, boosted by a 28,500 job gain in manufacturing.

The average hourly wage of permanent employees, watched by the Bank of Canada for inflation pressures, rose 2.6 percent in July from a year earlier.

Courtesy of Reuters