The Canadian employment report came in a bit weaker than expected for July, confirming most economists’ worst expectations that the economy is in a serious slowdown.

Payrolls came in a bit below expectations in the month, with a decline of 14,000. Full-time positions accounted for most of the job losses, and while manufacturing employment actually increased, service industry employment fell sharply, and construction employment was down, too.

One good sign is that the jobless rate held steady at 7%, thanks to a decrease in the participation rate. Also, wage inflation seems to be subdued, but this glosses over the fact that Canada’s economy lost 14,000 jobs during the month.

“This morning’s Canadian employment report should leave little doubt that the economic slowdown is gradually gnawing away at Canada’s labour market,” observe TD Bank economists. “While the headlines will undoubtedly focus on the fact that the unemployment rate remained unchanged for a fifth consecutive month in July, the more meaningful statistic is that the Canadian economy shed another 14,000 jobs during the month, adding to the 13,000 positions that were lost in June.”

“Today’s Canadian employment report capped a week of downbeat economic reports for July,” says BMO Nesbitt Burns.

CIBC World Markets suggests that the recent weak data adds up to a bleak economic picture. “With capital spending tanking and a slower-go U.S. economy casting ominous shadows over exports, Canada’s hopes of avoiding a deeper growth slowdown rest squarely with the consumer.

However, it observes that “With the Canadian labour market now experiencing the same steady, month-by-month erosion seen in the U.S., Australia, and many European countries, the consumers’ ability to pace the economy’s growth in the second half is looking increasingly doubtful.”

RBC DS Capital Markets Research offers some hope for the second half of 2001, suggesting, “Fiscal and monetary easing will boost activity later this year, but near-term risks remain to the downside and this points to quarter-point rate cuts from both the Bank of Canada and the Fed this month.”

TD says “the slow, steady deterioration in labour market conditions is likely to continue through the remainder of the year, which should send the unemployment rate climbing to 7.5% over the next few months. From the standpoint of monetary policy, today’s report cements another 25 basis point rate cut at the Bank of Canada’s next fixed announcement date on August 28.”

BMO Nesbitt Burns concurs, but CIBC World Markets is more aggressive. It agrees that a 25 bps cut is coming, but notes, “Beyond that, the bank is likely to trim a further 75 bps in measured moves over the next five or six months as the economy’s performance continues to disappoint with second half growth averaging only around 2%.”