Unemployment Down But Job Market Prospects Remain Uncertain

Statistics Canada released its regular monthly Labour Force Survey report today (October 9, 2009) and it contains good news: Employment in Canada increased in September by 31,000 jobs, and unemployment dropped for the first time since the fall of last year. The increase marked the second month in a row in which employment increased in Canada. Unemployment now stands at 8.4% in Canada, at 9.2% in Ontario, and at 7.4% in British Columbia.

Overall Economic Improvement Lifts the Job Market

These news are no doubt welcome for millions of working people and the thousands who lost their jobs in the recession. There have been recent improvements on other fronts as well – so it seems that the economy has finally turned the corner: The stock markets started recording gains earlier this year indicating improving sentiments among investors, and home prices in the GTA started to climb according to the Toronto Real Estate Board – which points to an improved consumer sentiment (click here to read the full report)

The Statistics Canada survey also found that the quality of the jobs improved in September, as the share of full-time jobs increased: The economy actually replaced 61,000 part-time jobs that were lost in September with full time jobs, and created 31,000 brand-new full-time positions.

The newly created jobs were not distributed equally across Canada: The bulk of the new jobs (14,000, or 45% of the total) were created in British Columbia. In BC, employment actually started increasing a while ago (in March), as the province has been preparing to host the upcoming Winter Olympics.

The increase in full-time jobs, on the other hand, was concentrated in Ontario: Two thirds of the new full-time jobs were created here. This, however, resulted mostly in an improvement of the overall job quality: Unemployment didn’t change much, as the full-time jobs created (+62,000) only slightly outnumbered the part-time jobs lost (-49,000).

Job Markets to Remain Unstable

This is all good news. It may be a sign that the job market has finally started to recover. It is almost certainly a sign that the situation has stopped deteriorating. However, the path to recovery will likely be long and marked by uncertainty, for a number of reasons:

For one thing, employment gains in September were dominated by BC’s job market. It remains to be seen whether BC’s job market will remain strong after the Olympics in February of 2010.

Also, we should not forget how the current crisis began. We have just gone through the biggest financial bust since the great depression. A sobering study of past banking crises recently released by the IMF (click here for the full report) found that, historically, financial busts have resulted in high unemployment rates that tended to persist for a long time. The report also found that, for the average country, a banking crisis caused the output per capita to decline by about 10 percent of its pre-crisis level, and it took as long as 7 years for it to recover to that level. This is worrisome because there is a clear link between increased unemployment and the decline in the economy’s output produced by the crisis.

Another sign of caution came from September’s employment numbers for the United States released just a few days ago.   The job market situation there was dramatically different compared to Canada: Unemployment rose to 9.8% in September, prompting Barack Obama to acknowledge that “We will need to grind out this recovery step by step” (http://www.cbsnews.com/stories/2009/10/06/ap/preswho/main5366623.shtml).

This matters because almost 80% of Canada’s exports still go to the United States. If demand there remains low, Canada’s economy will suffer. This is particularly true for Ontario, whose economy depends heavily on exports to the US.

Regional hiring demand data that we (Vicinity Jobs) collect and analyze also indicates that the recovery is off to a bumpy start. After hiring demand increases in July and August, we recorded a slight decline in September. And, even though in August we saw the highest hiring demand level since October 2008, the actual number of new job postings published online each month is still far below the levels from the first three quarters of 2008 (let alone the boom levels of 2007). It is also worth noting that hiring demand from the goods industries (resources, manufacturing, etc) seems to have almost reached its level from a year ago. Hiring demand from the (much larger) services industries, however, remains weak, and is dominated by jobs in the retail sector.

The recent employment gains are rare good news in the ocean of doom and gloom that the job market has been producing for almost a year now. Even though the crisis is far from over yet, it does look like the job market has finally hit the bottom. However, the way back to the top is bound to be long and difficult – especially after a collapse of the magnitude that we just experienced.