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December Report Paints Mixed Picture of the Health of Canada’s Job Market

by Strac Ivanov

Canada’s economy created 18,000 new jobs in the month of December. The unemployment rate edged up to 7.5% (from 7.4% in November) – but only because more people joined the labour force. Ironically, this is actually good news: It indicates that more unemployed people feel that they have decent enough chances to find work. But there is less to December’s employment growth numbers than meets the eye.

For one thing, all the new jobs created were part-time – and then some… The economy actually lost 26,000 full-time jobs in December, and added 43,000 part-time positions.

Also, consider this: 31,000 of the newly employed people did not actually become employees: They started their own businesses. If you think that this is good for the job market, think again: According to the US Small Business Administration (a US government agency), over 50% of all newly started businesses fail in the first few years after they are started. So most of the people who became self-employed this year will likely be returning back to the ranks of the unemployed in the not-so-distant future (granted, for some, self-employment will lead to employment). So while new businesses are needed for the economy to become more competitive, they do little to help solve the unemployment problem in the short term. And the vast majority of small businesses (over two thirds) do not hire employees – so will not create additional employment.

On a positive note, most of the jobs that were created were in the private sector. This is good news, because there is only so much that the government can do to reduce unemployment by hiring more employees: The private sector needs to gain strength for the economy to recover. It was also encouraging to see that the manufacturing sector saw a relatively strong employment growth, adding 30,000 jobs. (Employment was down 7,200 in utilities, and was little changed in the other industries.) But this comes at the end of a year in which, as a whole, employment in Canada’s manufacturing sector declined by 2.8% – even after taking the December gains into account.

In 2011, there were also declines in finance, insurance, real estate and leasing (-2.8%).

But Canada’s employment grew overall in 2011 by 1.5%, adding 194,000 jobs. So where did this growth happen? Mostly   in the accommodation and food services industry (+6.2%); professional, scientific and technical services (+6.0%); “other services” (+4.3%); and health care and social assistance (+2.9%).

It is also worth noting that many of the jobs created were in Ontario, British Columbia, and Nova Scotia. And many of the people who gained employment in December were older workers – 55 and over. Employment among youths aged 15 to 24 declined for the third consecutive month, down 17,000 in December. With this decline, youth employment was 12,000 below its level of 12 months earlier (-0.5%).

So what’s next?

The future of Canada’s economy – and Canada’s job market – remains as uncertain as it has been for many months now, as many serious risks will persist well into 2012 (and maybe beyond):

  • Canada’s real estate prices may drop sharply, leading to a destruction of wealth and slowdown in consumer spending similar to the one that lead to the recession in the US (Most economists agree that real estate in Canada is overpriced by 15% to 30% on average).
  • The European crisis seems bound to get worse before it gets better, may have a negative impact on the market for Canadian exports, and could hurt Canada’s financial sector.
  • The emerging economies (China, India, Brazil, etc) that were creating most of the world’s economic growth in the past couple of years may be cooling off. And the developed economies remain fairly stagnant.

However, hiring demand statistics that we gather for Ontario’s York region (the Northern parts of the Greater Toronto Area) suggest that the hiring demand was about 15% stronger in the last months of 2011 compared to the same period of 2010. And a larger share of the hiring demand was for good quality jobs in the private sector, compared to what we have become beein seeing since 2008. This gives us some reasons for cautious optimism.

Another possible cause for optimism comes from South of the border: The US employment numbers from December (also reported today), show a fairly impressive strengthening of the job market there, and come on the heels of several months of employment growth. Other economic indicators show improvement as well. This matters because the US is Canada’s largest trading partner.

Yet if the Canadian real estate prices fall sharply or the European crisis spirals out of control, there is little doubt that the trends will change for the worse. And the persistence of these risks will continue to cap any potential growth. We are at the start of a new year that will be interesting to watch and hard to predict.