* Job losses more than twice as bad as expected
* Jobless rate unchanged as workers abandon labor market
* Data casts doubts on timing of recovery
* Political tensions rise over jobless benefits (Adds analysis, political implications, U.S. data)
By Louise Egan
OTTAWA, Aug 7 (Reuters) - Canadian job losses in July were more than double what had been expected as employers cut workers even though the economy is commonly thought to be on the mend after its worst recession since the early 1990s.
Statistics Canada said on Friday the economy suffered net job losses of 44,500 in the month, compared with the market's consensus forecast of a 17,500 decline. The construction industry bled the most workers, followed by food and accommodation services, while factory workers were largely spared.
The unemployment rate remained unchanged from June at an 11-year high of 8.6 percent as fewer people stayed in the labor market looking for work.
The Canadian dollar
The dismal numbers may push some economists to push back their forecasts of an economic turnaround this quarter.
"This indicator suggests that economic recovery needs to be pushed off perhaps a little further," said Eric Lascelles, chief economist at TD Securities.
The Bank of Canada and most private-sector economists say the economy will start to grow in the third quarter after three quarters of contraction. The central bank projects 1.3 percent growth in the July-September period.
"This report may cloud their view a bit," said Sal Guatieri, senior economist at BMO Capital Markets in Toronto.
"We still think the economy will expand in the current quarter, but consumers could continue to struggle until job losses slow, if not end," he said.
The central bank has promised to keep its benchmark interest rate at a record low of 0.25 percent through June 2010, conditional on inflation staying under control.
But if the outlook worsens considerably, the bank could either keep rates on hold for longer or consider creating money to buy bonds in the market, a step known as quantitative easing.
"(The jobs report) is likely to keep the Bank of Canada cautious, maintaining current, very stimulative conditions," said Paul Ferley, assistant chief economist at Royal Bank of Canada.
ELECTION TRIGGER?
While declaring the worst of the recession over, Conservative Prime Minister Stephen Harper has tried to dampen any hopes of a quick rebound for workers, warning of continued layoffs for months to come.
The jobs data has become a hot-button political issue for Harper as the opposition Liberals pressure him to improve employment insurance benefits -- an issue that is shaping up to be a potential trigger for a federal election in the autumn.
Still, economists pointed out some good signs -- the overall pace of job losses appears to be slowing from earlier this year and the manufacturing sector carnage is slowing. Also, a lack of summer jobs for students explained part of July's big drop and that trend will be reversed in September.
U.S. employment fared better than expected in July. U.S. employers cut a fewer than expected 247,000 jobs, providing the clearest evidence yet that the economy is turning around.
In Canada, full-time employment in July declined by 29,000 and part-time employment fell 15,000. The private sector dropped 75,000 workers from payrolls while the public sector losses were marginal, and the number of self-employed rose by 35,000.
Hourly wages for permanent employees rose 3.2 percent in July, compared with a year earlier, down slightly from 3.4 percent in June. (Additional reporting by Toronto Treasury Desk; editing by Peter Galloway)