By Strac Ivanov
According to Statistics Canada, Canada’s economy added nearly 60,000 jobs in November 2012, beating even the most optimistic forecasts. Unemployment dropped, for the first time in 5 months, and is now at 7.2%. Sadly, such strong performance is unlikely to be repeated in the coming months. The hiring spree was short lived: Monthly hiring demand that we measure in Ontario has already dropped to one of its lowest levels since 2012.
On the face of it, the Statistics Canada report is almost all good news. Canada’s economy created 59,000 jobs in November alone, most of them in full-time employment. This is very remarkable, given that in the 11 months prior to November, the economy had been adding jobs at a much more modest rate of about 21,000 jobs per month on average. Ontario seems to have been one of the provinces that benefited most from the hiring spree: 32,000 new jobs were created here, bringing the province’s unemployment rate to 7.9% down from 8.3% in October. Alberta, Quebec, Manitoba, and Prince Edward Island all saw their economies create jobs as well. British Columbia was an outlier this time, as it lost 5,000 jobs – resulting in BC’s unemployment rate edging up 0.1 percentage points to 6.8%.
So who were the employers who did the hiring in November? 28,000 new jobs were in businesses from the accommodation and food services industry — mostly hotels and restaurants – which had lost jobs in the prior 11 months. Retailers also wholesale companies added 25,000 employees to their payrolls in November. 23,000 new jobs were created in the typically well paying Professional, Scientific, and Technical Services industry, which includes advanced technology and consulting firms. Employment in agriculture also rose by 9,000 jobs.
Such a positive report is surely a reason for optimism. It should boost confidence in Canada’s economy: After all, isn’t it proof of its resilience? Isn’t Canada defying the odds and creating jobs in spite of the global economic turmoil?
Unfortunately, there isn’t much substance outside of this report that would support such conclusion. The remaining economic news from November have been quite bleak, and the drivers of November’s expansion seem unlikely to persist:
- Several high-profile layoff announcements came out in November. Most notably, Calgary-based CP Rail announced the elimination of 4,500 jobs in the next 4 years, with 1,700 jobs to be cut before the end of December. There were other smaller layoff announcements as well, including one about Bell Canada cutting 90 jobs in Toronto. Kitchener-Waterloo based Research In Motion – the maker of Blackberry smart phones – is also in the midst of cutting a large number of jobs in Ontario. And in spite of a survey of executives released recently which found that a third of Canada’s employers plan to hire more staff next year, we have yet to see any major hiring announcements.
- Hiring demand measured by Vicinity Jobs in Ontario declined dramatically in November. Last month, we reported that in October, we had recorded the second strongest monthly hiring demand performance since the economic downturn 4 years ago. In other words, we already knew that more employers were looking to hire two months ago than we had seen in most of the past few years. This drove the improvement that Statistics Canada recorded in November. But November’s hiring demand levels are in stark contrast to October’s: New postings for jobs in Southern Ontario declined by 15% to 20% in November compared to October, with some regions (York, Halton, and Hamilton) recording even more dramatic drops of 20% to 30%. Hiring demand levels in November were among the lowest we have recorded in the past 2 years. In other words: If a hiring spree occurred, it was short-lived and has already ended. Quite likely, employers who would have typically hired new staff in December seem to have simply made their hiring decisions earlier than usual.
- Statistics Canada released another report at the end of November, according to which economic growth all but stopped in the 3rd quarter (Q3) of 2012. To create jobs, the economy must grow: And Canada’s economy pretty much stopped growing in the summer. Q3 numbers were worse than those recorded in Q2, and the decline came partly as a result of the largest drop in exports recorded in over 3-years. This is a strong reminder that Canada’s economy cannot be insulated from the impact of the economic slowdown in Europe and the emerging markets.
- In late November, Bank of Canada issued a report containing what is perhaps its strongest warning so far on the perils of Canada’s record high consumer debt levels. According to it “The most important domestic risk to financial stability in Canada continues to stem from the elevated level of household indebtedness and stretched valuations in some segments of the housing market.” (The full report can be downloaded here) The report explained how condo market imbalances could spell trouble for all aspects of the economy – including the job market. Of a particular concern is the large number of condos under construction that will hit the market sometime in the next 12 to 18 months, potentially at a time of falling prices and low home market activity. In our job market reviews in the past, we have identified the real estate market as one of the major risks to Canada’s economy – and by extension to the Canadian job market. We warned against underestimating the damage that could be caused to Canada’s economy and the job market if the bubble bursts. The Bank of Canada seems to have concerns very similar to those that we have voiced.
- The businesses that created the most jobs in November (retailers, wholesalers, restaurants, and hotels) are the ones most dependant on consumer spending. With consumer credit at record high levels, Canadian’s are not likely to be able to support growth in these sectors much longer. At the same time, employment growth in the manufacturing sector seems to have stalled in recent months. After several months of little change (linked to the decline in exports reported in Q3), 20,000 Canadian manufacturing industry jobs disappeared in November. This suggests that Canadian manufacturers are again struggling to find markets abroad for their products.
The events that will likely impact Canada’s economic performance and job market the most in the coming few weeks are unfolding South of Canada’s borders. Although the US economy posted job gains in November, the risk of US politicians not reaching a satisfactory agreement on time on the so-called “fiscal cliff” persists. Unless a deal is reached, the first spending cuts and tax increases will take effect in the United States on January 1, 2013. With only 20 days remaining, the US politicians still appear disturbingly far from reaching a deal. The obvious risk is that the US economy will simply go over the fiscal cliff and may end up in another recession next year, dragging the Canadian economy with it. Another possibility is that US politicians will reach a temporary compromise only days before the year ends, only to postpone negotiations on a permanent solution. Over the mid to long term, this may prove to be just as damaging to the US and Canadian economies as not finding a solution at all, because it will preserve the uncertainty. Businesses will be a lot less likely to expand and hire more workers in an environment of persisting uncertainty – because it makes investment decisions more risky.