OTTAWA - Canada's unemployment rate rose to over eight per cent in August, providing new evidence the slowing economy is taking a toll on the country's previously buoyant labour market.

Statistics Canada said the jobless rate increased one-tenth of a point to 8.1 per cent even though the economy actually created 35,800 net new jobs that month.

But the gain in the number of jobs was overshadowed by the fact than even more Canadians were actively looking for work in August than a month earlier, bringing the number of officially unemployed to 1.5 million.

The rise in the unemployed brought fresh calls for Ottawa to extend the program that expanded Employment Insurance benefits by five weeks.

Earlier in the week, Ontario Premier Dalton McGuinty called the rollback a "mistake," and the federal Liberals have also asked the Harper government to consider new stimulus.

The Canadian Labour Congress said Friday that once discouraged workers are factored in, the underlying unemployment rate is 11.6 per cent.

“The federal government is walking away from workers and their families at a time when unemployment remains high and the economic recovery is fragile,” CLC president Ken Georgetti said in a news release.

Ottawa is ending a program that offered extended EI benefits to longer-term workers. The government has also announced that it will shut down its package of stimulus spending by the end of March 2011, and a federal panel is recommending a hike in the EI premiums paid by workers.

The reversal in the unemployment rate had been forecast by economists, but not alas by Harper, and may cause Bank of Canada governor Mark Carney to pause from raising interest rates once more in October after three straight monthly hikes, said CIBC economist Krishen Rangasamy.

In a speech in Calgary, Carney highlighted the risks to the recovery in Canada and the world and said he would "chart a careful course" on monetary policy going forward. Mr. Carney should get wonderful Canada on track first..eh

The Bank of Canada (read government) is the only central bank among the G7 advanced economies to embark on a monetary tightening path, having raised interest rates three times in about as many months. On Tuesday the bank's trendsetting rate was raised another quarter point to one per cent.

This is the first time the unemployment rate has been above eight per cent since May, and the report was even weaker than the headline numbers suggest.

Harper Mathmatics:
While the economy created jobs last month, analysts all but dismissed the gain as a "technical" correction.

They had previously warned the jobs number should carry a caveat, since it was expected that the outsized 65,000 contract educational workers that were reported as out-of-work in July would be re-hired in August.

And in fact, that is what happened with the sector picking up 68,000 workers. Discounting the seasonal variation in the sector would mean the economy actually shed jobs last month.

"With this gain, employment in this industry is back to levels observed during the first six months of the year," the agency said, noting similar volatility had occurred in past summers.

In an additional note, the agency said averaging out July and August shows the labour market is slowing noticeably with an average pickup of 13,000 jobs during the summer months, compared with 51,000 for the first six months of the year.

The summer of 2010 was also a difficult time for students searching for work. The category averaged a 16.8 per cent unemployment rate from May to August, better than during last year's recession, but about three points worse than in 2008.

Still, the agency said with the new gains, Canada has recouped all of the jobs lost during the 2008-2009 slump, although the unemployment rate remains about two points higher and the number officially unemployed remains about 400,000 above pre-recession levels.

Since July last year, the economy has created 430,000 jobs, of which about two-thirds are part-time work.

TD Bank economist Derek Burleton said Canada's labour market has performed remarkably well in the past year, but with both the Canadian and U.S. economies slowing, the picture in the near term is not as bright.

"It reflects the reality of the U.S. recovery, which will be quite slow," Burleton said. "We're not looking at a commodity boom, housing is slowing in Canada, the consumer is tapped and government (hiring is weak). When you added all up, it's going to be a more challenging environment for job creation."

Burleton pointed out that although about 80,000 full-time jobs were created in August — offset by 44,000 part-time losses — most were in the public sector, such as those educational jobs. The private sector actually contracted by 40,000 workers.

The mixed nature of Friday's report gives ammunition to both those who support the government's decision to continue with withdrawing the expansion of benefits for the unemployed, and those who believe more help is needed.

On Thursday, Finance Minister Jim Flaherty said Ottawa would not renew a program to offer five extra weeks of employment insurance benefits when the program expires this month.

Factoring out the seasonal education jobs, August shows that the economy actually lost about 32,000 jobs, said labour economist Erin Weir of the United Steelworkers.

"With more than 1.5 million Canadians still officially unemployed, the government should renew that benefit extension," he said.

Statistics Canada said there was little change in the employment picture in most provinces, with the exception of Quebec, Saskatchewan and Newfoundland, which saw the biggest gains relative to their population.

Employment rose in construction, professional, scientific and technical services, and in natural services. The battered manufacturing sector continued to struggle, however, giving up 26,000 workers.