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The Canadian economy has a growing jobs problem just as federal and provincial governments brace the public for deep spending cuts in 2012.

Statistics Canada reported on Friday that full-time employment dropped by 26,000. The new numbers come at a time when Ottawa and the provinces can no longer afford stimulus programs such as the tens of billions they spent to boost employment during the global recession.

While 17,500 jobs were created in December – reversing two previous months of declines – the gains Statistics Canada reported were primarily thanks to new part-time jobs.

"It's a knife's edge right now," said Miles Corak, a University of Ottawa economics professor, adding that governments must square the circle of trying to cut deficits while boosting employment. "The greater the emphasis on deficit cutting, there's going to be some short-term costs to be paid for that."

The news was far more positive south of the border, with a jobs report showing the unemployment rate fell to 8.5 per cent in December, its lowest level in almost three years. The world's largest economy added 200,000 non-farm jobs in December, above expectations, prompting President Barrack Obama to boast that a rebound is under way.

The sharp contrast between the two jobs reports could ultimately be a good thing for Canada, Prime Minister Stephen Harper said on Friday in Edmonton, given the ties between the two economies.

"Obviously, the news is not all good in the jobs report," he said, describing the Canadian numbers as "mixed."

Governments are sending signals that deep budget cuts are coming early this year. But handing out pink slips to public servants and scaling back government spending won't help Canada's unemployment rate – which ticked up to 7.5 per cent from 7.4 per cent in December. Civil-service jobs have declined for three months straight.

Prof. Corak noted that Canada's employment numbers for 2011 show the job hunt is much harder for some groups, particularly youth and immigrants.

"The groups that are sort of the outsiders, the ones trying to get a foothold in the labour market, are shouldering the burden," he said.

As his government prepares for a budget expected in February or March, Mr. Harper said his priorities are to keep taxes low, reduce the deficit, invest in training, research and infrastructure and focus on trade.

Finance critics for the opposition NDP and Liberals said the job numbers show Mr. Harper's policies aren't working and a change in course is needed in the budget.

The one positive note from Friday's Labour Force Survey was the manufacturing sector, which added 30,000 jobs in December after losing almost 80,000 in the prior three months.

Overall, the Canadian economy added 199,000 jobs, for a 1.2 per cent gain, in 2011. But most of the good news came before July; the economy added just 7,000 new jobs in the last six months of the year and lost 55,000 in the last quarter.

For Dominique Lacroix, the co-owner of A. Lacroix & Fils Granit, which manufactures granite products in St-Sébastien, Que., 2011 was not an easy year.

About 60 per cent of the firm's products – including Atlantic Green granite, which was used in the Martin Luther King Memorial – are sold in the United States, where the economy has been slow to pick up.

"We've had to lay off eight of about 130 because of the slowdown," she said. Another 10 who retired were not replaced.

She is hoping that the slump will prove short-lived and said she's encouraged by the number of contracts already on hand for 2012. She hopes to be able to rehire the laid off workers soon.

The sluggish jobs picture in Canada – marked by a sharp drop in employment levels in Quebec – is unlikely to change the Bank of Canada's stand on maintaining interest rates at current low levels, TD deputy chief economist Derek Burleton said. "You're looking at a job market that was floundering toward the end of 2011. We expect more of the same in early 2012."

With reports from Bertrand Marotte in Montreal and Associated Press