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Employment in Canada Increased in December 2012: But Where Are the Jobs?

Written by Strac Ivanov, president of Vicinity Jobs Inc

Statistics Canada latest labour market survey for 2012 is surprisingly upbeat, reporting job growth (mainly in Ontario) and an unemployment rate decrease. In fact, unemployment is now officially at its lowest level in 4 years.

The problem: These findings fly in the face of major trends reported in other key economic reports and announcements (including StatsCan’s own) from the past month. Expect a downward correction in early 2013.

An employment increase means that Canada’s employers hired more people overall than they laid off. And Ontario accounted for three quarters of the employment growth…

If you were out there looking for work in December, you will be excused if this news left you scratching your head.

If employers were hiring, then where are the jobs?

They certainly were not advertised: In December, our Vicinity Jobs hiring demand index for parts of Ontario recorded the second weakest monthly hiring demand level since at least January 2007. Granted, December is traditionally the weakest month of the year when it comes to hiring demand. But we have data from 5 other past Decembers – and even in comparison to them, December 2012 looks weak.

The only month in which hiring demand dipped even lower was December 2008. Remember December 2008? This was right after the world’s financial markets had fallen off a cliff and were in a deep freeze. This was when then-US president George Bush approved the first part of the massive bank bailout packages. The talk was of an economic depression. In every single month since or before then, Ontario’s employers have advertised more jobs.

So did Canada’s employers continue hiring but suddenly stopped advertising the jobs and tapped into the hidden job market instead? Not likely… Even if such trend existed (I do not believe that it does), an employers’ change of heart would be gradual and will not happen in a month.

The lack of major hiring announcements in recent months makes the reported employment increases even more puzzling. A number of other reports released recently make such increases even more doubtful. Here are some of them:

1/ GDP growth and sales growth stalled

If employers hired more people, they must have produced more goods and services. This would have resulted in GDP growth. (The only other explanation – a decrease in the productivity of Canada’s workers – is very unlikely because Canada’s employers will not tolerate it in today’s tough global economic climate).

But in Q3 of 2012, real GDP growth stalled. The Q3 numbers will not be released until late February, but as the graph below shows (courtesy to StatsCan), growth in the preceding 3 quarters was weak. A sudden spike in Q4 of 2012 will be hard to explain.

Canadian GDP Growth 2007 to Q3 2012

This is also supported by the Bank of Canada’s Business Outlook Survey for Q4 2012. It found that “firms have faced a period of softness in economic conditions” . In Q4 of 2012, more than half of the Canadian companies surveyed reported that sales growth had declined in the past 12 months. At the same time, the number of companies reporting pressure on production capacity dropped – creating less incentive for them to hire. Sure enough, most companies expected an improvement in the next 12 months. But without production capacity pressure, employers will not start hiring until the expected sales growth materializes. The full report can be found here

2/ Exports Declined and Imports Increased

Canadian exports dropped 0.9% in November whereas imports increase 2.7% (The December numbers will come in February). Exports peaked back in December 2011 and have been in decline since. Imports are near a 5-years high (see full report here). If Canada’s economy was producing more, then it must be either consumed at home or exported. This does not seem to be happening.

StatCan did report an increase in employment in the transportation and warehousing industry – which could be related to the increased level of imports. But without a matching increase in GDP and given the decline in exports, growth in imports must be offset by a decline in other sectors (manufacturing).

3/ Fewer Building Permits were issued in November, as the home sale market continued to slow down

The StatCan labour market survey found that much of the employment growth was in the construction industry.

However, in November, the number of new building permits issued dropped to their lowest level since January 2012. The November levels were still in line with the levels recorded in the past 3 years. (full report here) But this comes as the Canadian Real Estate Organization and the Real Estate Board of Toronto and Vancouver have been reporting a significant slowdown in the real estate market activity along with continuing decelerating price growth – and price declines on many of the more expensive markets (Read full report here).

Without a healthy real estate market, any hiring spree in the construction industry is unlikely to last.

If new jobs were not created, is it possible that employers suddenly slowed down the rate at which they have been historically laying off people?

Unfortunately, I don’t see a reason for such adjustment. Only a month ago, CP Rail announced the elimination of 4,500 jobs over the next 4 years, including 1,700 before the end of December (this makes the reported employment increase in the Transportation and Warehousing sector even more puzzling). Research in Motion has been laying off many of its staff too. I am not aware of anything that happened in December that would have made employers to hold off the layoffs.

In light of all this, the employment growth that StatCan reported in December could only be the result of a statistical error or statistical fluctuations. Either way, an adjustment is on order.

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