Canada lost nearly 40,000 jobs in July – the latest manifestation of an economy stuck awkwardly between recession and recovery.

The sharp drop in employment last month, led by losses in the public sector, comes just two months after the economy turned in a record monthly job gain of nearly 100,000. Since January, the job numbers have ranged from a drop of 54,500 to a surge of 95,000.

Volatility, it seems, has suddenly become the new normal in the Canadian job market. The situation mirrors scattered signals globally, with the U.S. showing strength, China slowing down and the European Union still far from a solution for its entrenched economic malaise.

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"Given the stage of the cycle, this is unusual," Derek Burleton, deputy chief economist at Toronto-Dominion Bank, said of the gyrations. "It's been an up-and-down ride, to say the least."

Canadian Imperial Bank of Commerce economist Avery Shenfeld complained Friday of suffering from a bad "case of neck strain" following the wildly bouncing numbers.

David Rosenberg, chief economist and global strategist at Gluskin Sheff, downplayed the importance of the July figures, pointing out that the longer-term trend still points to modest job growth. "In the span of three months – if you believe these figures – Canada has gone from boom to bust," he said.

July's national unemployment rate edged up a notch to 7.2 per cent from 7.1 per cent in June, Statistics Canada reported Friday. Particularly hard-hit was Quebec, where the jobless rate jumped 0.3 percentage points to 8.2 per cent, and employment fell by 30,000.

The largest contributor to the overall 39,400 drop in employment was a loss of 74,000 in the public sector, partly offset by gains in manufacturing, utilities and pockets of the service sector.

Government cutbacks are finally taking a toll on workers. Public sector jobs are down 1.6 per cent so far this year, with seven out of 10 provinces experiencing declines.

"This is a sea change from 2012 when 32 per cent of jobs created in Canada were in the public sector," National Bank chief economist Stéfane Marion pointed out in a research note.

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The other big losers were young workers in what was apparently a bad summer for student job seekers. Employment among 15 to 24-year-olds dropped 46,000, leaving the jobless rate for this bracket unchanged at 13.9 per cent.

Economists said extreme employment volatility is partly a measurement problem by Statscan, but also a function of an economy struggling to find a new economic engine. Investments in homes and large natural resource projects are no longer driving growth, as they were earlier in the cycle. And a lift from the improving U.S. economy is still not bearing fruit for many exporters.

A report this week by TD said Canada job numbers have shown unusual volatility over the past 18 months, based on an analysis of historic trends. The report said the uncertain economic environment is affecting hiring decisions.

Scotiabank economist Dov Zigler said the monthly numbers are less telling than the longer-term trend, which shows sluggish job growth and an economy struggling to gain traction.

"You have to look at the jobs' numbers in terms of a number of months," Mr. Zigler said. "At the end of the day, it's a telephone survey. It's prone to volatility. It has a margin of error. The best way to look at it is in terms of the big picture and not to get too caught up in the temporary factors that show up in one month."

So far this year, the economy has generated an average of just 6,000 jobs a month. That compares to a monthly average of 20,000 over the past two decades.

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Take the average of the past three months, and employment is up a respectable, if unexciting, 18,400.

Mr. Zigler blamed a "rebalancing" under way as the housing and natural resource sectors step back as the drivers of the economy. "The hand-off to U.S.-driven growth hasn't happened yet," he said.

In a familiar refrain, Kelly Dixon, president of job posting web site Workopolis, said job prospects remain quite good in parts of the country, particularly Alberta and Saskatchewan. The two western provinces, with enviable jobless rates of 4.5 per cent and 4 per cent respectively in July, are at near full-employment, Ms. Dixon said.

Also in high demand are skilled trades and construction workers. Across the country, the number of advertised jobs is up 7 per cent from a year ago, Ms. Dixon added.

The longer-term trend is slow, but at least it's positive, she said, noting that the economy has added 226,000 jobs over the past 12 months – a 1.3 per cent increase.

"It's sluggish improvement, but it's improvement," Ms. Dixon said.