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Gravity Prevailed On Canada’s Job Market in January 2013

by Strac Ivanov, president and co-founder of Vicinity Jobs Inc

After defying economic gravity for a couple of months, Canada’s job market seems to be coming back to earth.

In my blog post last month, I explained why I found Statistics Canada’s job market reports for November and December puzzling. I found it hard to reconcile the significant job growth reported by Statistics Canada with the reports of poor economic performance, weak hiring demand, the abundance of layoff announcements, and the lack of announcements about expansions. This paradox lead most economists to predict that employment growth would slow down in January.

After forecasting a downward correction, I received suggestions from some of our readers that perhaps the labour market surveys were correct and the remaining news were missing the point. Perhaps the layoffs that had been announced were never really carried out, and employers simply stopped advertising jobs online but continued hiring through social media and networking channels.

The verdict is now out: The January labour market survey results were just released. Unfortunately, Canada’s job market reacted exactly as I had forecasted. Canada’s economy lost 22,000 jobs, mostly in Ontario and BC (the markets that we monitor most closely). In fact, Ontario lost 31,000 jobs and British Columbia lost 16,000 in January, but these losses were partly offset by employment gains in the oil-rich provinces (Alberta, Saskatchewan, and New Brunswick). So Ontario lost the gains it had made in December.

As for BC, the province never really took part in the job boom reported by Statistics Canada in the last quarter of 2012 and had been shedding jobs since August. Now, as a result of January’s job losses, employment in BC stands at levels we last saw in March 2012.

A closer look shows that the 22,000 jobs that Canada’s economy lost in January may actually be somewhat understated. The number of employed Canadians actually dropped by a more significant 46,000, but the decline was partly offset by the creation of 24,000 self-employment jobs. This simply means that 24,000 Canadians stopped looking for work and tried starting their own businesses instead. This happens often when the job market is weak. The problem: Past experience shows that the majority of new businesses fail in the first few years after they are started. So most of these “self-employment” jobs will likely disappear in the next couple of years.

It is interesting that Canada’s unemployment rate still fell by 0.1% in January, and now sits at 7%. This points to the limitations of the system that we use to measure unemployment. It is simply the result of the size of Canada’s labour force shrinking even faster than the number of employed and self-employed Canadians. The labour force is the number of people willing and available to work. Many unemployed Canadians may have become discouraged by the weak hiring demand that we recorded in the past few months. Some may have gone into early retirement, but most would have gone back to school or taken a break. Many will eventually return to the work force, putting upward pressure of the unemployment rate.

So what’s next?

Buckle up and prepare for another period of instability. There are simply too many unknowns at this time and it is difficult to predict exactly where the market will go from here. But it is fairly certain that the ride will be bumpy.

The were some good news in January:

  • Hiring demand actually went up a bit. It is not quite at the levels that we recorded in January of 2012, but the year-over-year gap was significantly smaller than we had recorded in November and December.

  • The US economy did not go over the fiscal cliff as was feared in December (tax increases were implemented but spending cuts have been delayed).

  • Stock prices have been quite strong in recent months. This matters because it makes it easier for publicly traded companies to get access to capital. But if the economy remains weak, the stock market will likely weaken too.

Yet Canada’s economy – and by extension the job market – continue to face significant risks:

  • We have not seen the full impact of the weak hiring demand recorded in November and December, or of the layoff announcements that came in the past few months (from companies like CP Rail, Sears, BestBuy).

  • The US economy may still go over the so-called fiscal cliff later this year, resulting in a weaker demand for Canadian exports south of the border. This outcome appears even more likely now that US politicians have simply kicked the can down the road after failing to reach an agreement in December. (I explained in my post in December why this in itself is damaging to the Canadian economy)

  • The economy of another important export market for Canadian goods – the European Union – remains weak. This adds an extra layer of uncertainty which in turn drags down investment – including here in Canada.

  • At home, the problems associated with the record high consumer debt levels persist and are unlikely to go away any time soon. High credit means that Canadians are forced to spend less, which might lead to even more retails in various industries, but most notably retail. The real estate market is also facing strong headwinds and is due for a downward correction. As I have explained in past posts last year, such correction could be quite harmful to Canada’s economy.

  • Gas prices seem to have started to creep up. This is a mixed blessing for Canada: It may accelerate growth in the oil-rich provinces, but is likely to hurt those with economies dominated by manufacturing (Ontario, Quebec, etc).

The picture that we will see in the coming months depends on which of the risks materialize and to what extent. Unless hiring demand suddenly spikes up, however, I expect some employment level declines in the very near future (1 to 2 months), as we are still feeling the impact of the weak hiring demand recorded in November and December.