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Unemployment Likely to Start Decreasing As Hiring Demand Is Improving

When Statistics Canada released its labour force survey on Nov. 6th, reactions in the media seemed to reflect a mix of surprise and frustration. Unemployment had edged up in October, and many saw this as a sign that we may be in for a jobless recovery – characterized by GDP growth combined with chronic high unemployment levels. Although this does remain a possibility, we believe that such fears are premature.

A month ago, Statistics Canada had reported that unemployment had decreased in September. Back then, we cautioned against assuming that this means that the recovery will be quick and steady. Our hiring demand data was pointing to a slow and volatile improvement (click here to read full article). Nonetheless, hiring demand levels are improving – and our October data supports that conclusion, even though the improvement is slow and volatile.

The graph below shows how hiring demand and unemployment in GTA’s suburban communities (Durham, Halton, Peel, and York) have changed since the beginning of 2008, as a result of the economic slowdown and the recession:

Hiring Demand vs Unemployment Jan 08 to Oct 09
It appears quite obvious that after hiring demand hit rock bottom in December and remained there for most of the first half of this year, it is now finally increasing. Employers are advertising more jobs now than they did 6 months ago (although not as many as they did a year ago), and hiring demand has clearly been improving since May.

The hiring demand increase is partly the reason why unemployment has stopped growing in Ontario after peaking in June at 9.6%. It seems that, with some luck, we may not even cross the psychological barrier of 10%. If hiring demand continued to increase over the next several months, we expect that the unemployment rate will start declining.

There are other possible explanations of why unemployment may have stopped growing that have nothing to do with hiring demand. Many of them do not sound so positive, and this is why we remain cautious and believe that the ongoing recovery will remain volatile and slow. The job market went into deep freeze in late 2008 and remained there for a long time. Many unemployed may have given up hope of finding a suitable employment after months of fruitless job hunting. The EI benefits may have ended for many who lost their jobs in the early stages of the recession. As a result, some may have given up trying to find work and are looking for other opportunities – such as starting their own businesses. Those who can afford it may have decided to take a break – or go back to school. All these people would not be counted as unemployed by StatCan, which will depress the number of unemployed – and with it, the unemployment rate – even though they never actually found jobs. When the economy starts doing better, many such people will re-join the labour force, as their chance of finding work will improve.

In fact, the two most recent StatCan labour force surveys noted that self-employment had been increasing. However, most business startups never make it past their first birthday even in the best of times – and the people who started them will re-join the job market.

Nonetheless, the hiring demand increase is good news as it is necessary for the job market to start recovering. Simply put, employers need to start hiring in order for the unemployed to find work – and an increased hiring demand means that employers are, in fact, starting to hire.

One aspect of the recovery seems somewhat bothersome, however: Back in May, we released a detailed report on the impact of the recession on hiring demand in GTA’s suburbs (found here). We pointed out that the impact of the recession on GTA’s job markets had not been even. Hiring demand in larger economic centres like Mississauga and Markham had been affected significantly less than in smaller communities. This trend never reversed itself, as the graph below clearly illustrates:
Suburban GTA Hiring Demand by Region

As a result, it seems that jobs in Halton and Durham regions are being replaced by jobs in Peel (primarily in Mississauga)   and York (primarily Markham). Such concentration of hiring demand is worrisome because it will increase the need for GTA residents to commute long distances – which will affect productivity, and the environmental and social sustainability of our communities. It may also result in real estate prices growing in the areas with more employment and stagnating elsewhere.