This morning’s employment report delivered a consensus-beating headline number, but economists warn that the details are weaker, betraying a still-soft labour market, which may curb the Bank of Canada’s rate hikes.

Statistics Canada reported that 36,000 new jobs were created last month, and full-time jobs jumped by almost 80,000. However, most of the jump came in the education sector, and private employment actually dropped by almost 40,000 as all of the job gains came in the public sector and among the self-employed, economists point out.

National Bank Financial says that the drop in private employment was the biggest in over a year, and that 60% of the decline was focused in manufacturing. “This may have been caused by the retooling season in the automobile sector. We still have to wait for another report or two to see the true underlying trend in this component.” NBF says.

In addition to some weakness in the underlying trends, the unemployment rate rose to 8.1% as the participation rate increased. And, as economists at TD Bank point out, “Consistent with a still-high unemployment rate, wage pressures remained tepid.”

BMO Capital Markets says that this is a very noisy jobs report overall. Filtering out some of that noise, “the underlying story is on the soft side and consistent with a broader loss of economic momentum,” it concludes. “The two-month back‐up in the jobless rate may best capture the story, though it’s still well down from the 8.7% peak a year ago.”

CIBC World Markets indicates that looking at “more reliable” six-month average numbers, “still shows a relatively decent labour market. However, putting the most recent couple of months together, a less impressive picture emerges, particularly with the loss of private sector and full-time positions. We continue to expect the Canadian labour market to ramp down a notch, in line with a much slower economy.”

TD also points out that, at 1.5 million, the number of unemployed remains about one-third above its pre-recession peak, and the unemployment rate is about two percentage points above its level of two years ago. Also, many of those who are now in part-time employment are in those jobs involuntarily, it says. “Lastly, the soft increase in wages speaks to the ongoing slack in the labour market not to mention the fact that lower-wage service industries have accounted for a sizeable share of gains during the recovery,” it says.

“Although surveys by the Bank of Canada and Manpower both point to continued positive near-term net hiring intentions, we are concerned about a number of growing impediments to Canadian job creation,” TD says. “Broadly speaking, output has been growing in line with aggregate hours worked over the past year, implying virtually no growth in labour productivity. With visible deceleration in the pace of output growth since the spring and pre-tax corporate profits still recovering, we anticipate that businesses will seek to boost productivity partly through fewer additions to payrolls in the months ahead.”

TD is forecasting “only very modest gains of 5,000-10,000 per month on average over the remainder of the year and in the first quarter of 2011, before a moderate acceleration takes place later in 2011. In this environment, the jobless rate will be hard pressed to break below 8% on a sustained basis even if growth in the labour force cools off in tandem, as we anticipate.”

“With the unemployment rate remaining sticky near 8%, the inflation rate staying below target, and a slowdown that could potentially get both of those indicators heading in the wrong direction, it will be tough for the Bank of Canada to justify further tightening this year,” observes CIBC World Markets.

“The muddied nature of this report doesn’t change the dial for the Bank of Canada,” concludes BMO.

IE