Even a broken clock is right twice a day, and economists finally had their turn to be right as the Canadian jobs report came in weak.

“It had to happen eventually. After blowing past consensus estimates for 12 consecutive months, the great Canadian job machine finally came wheezing to a halt in January, as payrolls declined by 2,100 last month,” reports BMO Nesbitt Burns.

That said, Nesbitt notes that today’s report is not nearly as weak as the headline figures would suggest. “Here’s why: First, full-time employment surged for the third month in a row (34,400), chalking up an increase even larger than the robust average of the past twelve months. While some have suggested that recent Canadian job gains have been ‘low quality’, the fact remains that full-time positions have risen 2.6% in the past year, a pace most industrialized countries will see only in their dreams,” says Nesbitt.

“Second, the unemployment rate actually ticked down a notch in the month to 7.4%. Keep in mind that during last year’s job surge, the Bank of Canada calmly noted that the slow decline in the jobless rate suggested there was more slack in the economy than met the eye. Today’s report turns that thinking on its head – despite the drop in payrolls, the decline in the jobless rate may suggest that there is now less slack than previously thought in the economy.”

Nesbitt says that one clear warning sign is the weakness in factory jobs – down in 4 of the past 5 months. “While we expect the Canadian job market to put in a healthy showing in 2003, a repeat of last year’s stellar performance is not in the cards – and weak U.S. demand is likely to continue to weigh on the more export-oriented sectors over the next few months,” offers TD Bank. “Look for a gain of about 200,000 jobs in 2003.”

“There are two ways to look at today’s employment report. It’s either a well-deserved breather after a wave of aggressive hiring, or perhaps a signal that economic prospects have softened in 2003,” says CIBC World Markets. “We’re reluctant to make too much out of a one-month setback, but we do anticipate a noticeably slower pace of hiring this year. An average monthly gain of roughly 20,000 would be less than half of that enjoyed in 2002, and would be consistent with an economy that has downshifted to slightly below its 3% non-inflationary potential growth rate.”

The big question is what this means for interest rates, which are expected to go soon, and steadily throughout the year. “On balance, while today’s report leaves little doubt that the struggling U.S. economy is taking a bite out of Canada’s labour market, there was little evidence of any real broad-based weakness in the Canadian employment landscape in January,” observes TD Bank. “As a result, today’s numbers are unlikely to sway the Bank of Canada from its renewed tightening agenda, and consequently, we still expect it to pull the interest-rate trigger at its next fixed announcement date on March 4.”

RBC Financial says that, “Some will see this report as a good reason for the Bank of Canada to hold off on its push for tighter monetary policy expected to be underway by April, but we don’t see anything in this report that will change the Bank’s mind.” It says that wage growth numbers give the Bank ample reason to bring monetary policy back to a neutral setting.

CIBC says it’s likely to be the geopolitical situation, not economic numbers, that takes centre stage at the Bank of Canada’s rate-setting date in March.