The Canadian economy added 21,000 jobs in September, Statistics Canada reported on Friday, snapping a three-month losing streak.
The unemployment rate ticked lower to 5.2 per cent in the month, from 5.4 per cent in August, as fewer people searched for work.
The job gains were mainly in the public sector, including education, while sectors such as manufacturing and warehousing posted losses.
Employment in the private sector was essentially unchanged last month.
"On the surface, it might look like the Canadian labour market has recovered from the cold it caught early in the summer, but the details suggest otherwise," said Royce Mendes, managing director and head of macro strategy at Desjardins Capital Markets, in a note to clients after the release.
Since the bulk of the gains were in education – which is typical for the September report – the gain “can't be viewed as a true re-acceleration in employment," he said.
From June to August, the domestic economy had lost a cumulative 114,000 positions.
Meanwhile, wage growth remained above five per cent for the fourth straight month.
This is the final jobs report release before the Bank of Canada announces its next interest rate decision on Oct. 26, where it's widely expected to increase its benchmark rate again.
Pace of rate hikes to slow?
With the details indicating a weakening, albeit still very tight labour market, the question now is how it could play into the Bank of Canada's thinking on monetary policy.
Mendes says it likely won't deter the central bank's current path as it stays laser-focused on bringing inflation back down to its two per cent target – the Bank's sole mandate.
As of August, consumer prices grew seven per cent year-over-year.
The central bank is also desperately trying to avoid a wage-price spiral, where higher wages and inflation continuously feed into each other.
In a speech on Thursday in Halifax, Bank of Canada Governor Tiff Macklem once again reiterated the need for higher interest rates, saying there is "more to be done."
"The Bank of Canada is looking for a further softening in economic data before it can consider taking a breather on rate hikes. Given that the labour market has led the recovery over the last two years, this is one area where a greater recalibration is needed," said James Orlando, director and senior economist at TD Economics.
Economists at BMO Capital Markets and CIBC Capital Markets agree that labour market conditions aren't yet cool enough for the central bank to fully back off from its aggressive tightening campaign, but add that the weakening in the data might be enough for policymakers to consider slowing the pace of hikes.
"The low unemployment rate and strong wage growth support the continued hawkish tone from the Bank of Canada governor yesterday and a 50bp rate hike at the next meeting. However, signs that a growing number of sectors are slowing down should bring a more cautious approach from policymakers after that," said Andrew Grantham, a senior economist at CIBC Capital Markets, in a client note.
Market data show that the central bank is widely expected to ultimately raise its key lending rate to four per cent by the end of the year, from 3.25 per cent currently.
Michelle Zadikian is a senior reporter at Yahoo Finance Canada. Follow her on Twitter @m_zadikian.