Last January, Maclean’s published a cover story warning that the Canadian economy would likely lose a quarter of a million jobs this year. The economic storm was just beginning to reach hurricane force, but Canada was still in relatively good shape. The government was still insisting that our world-leading banks would shelter us, and a couple of rival publications chortled at our economic warning and suggested we were being alarmist. I wish.
It turns out we underestimated the threat to Canada’s job market by a fair bit. As of July, roughly 331,000 jobs have been lost in 2009, the unemployment rate has gone from 6.6 per cent to 8.6 per cent, and if not for the fact that thousands of Canadians now consider themselves “self-employed,” the carnage would look far worse.
But just as the early days of the recession created confusion and doubts, so too are these later stages. The latest bad news about jobs (45,000 lost in July) came out just a day after several major newspapers trumpeted the end of the recession as front-page news. Even resolute bears like economist David Rosenberg were beginning to see encouraging signs of a recovery. The jobs numbers hit like a freezing cold shower. “If the recession indeed ended in July, Canadian employers didn’t seem to get the message,” CIBC World Markets chief economist Avery Shenfeld wrote in a report to clients.
It’s reasonable to fret about the fate of Canadian workers, but this is all part and parcel of how economies re-build themselves.
The process of firing workers is a slow one for most companies. There are forecasts, and board discussions, and HR processes to go through. And most managers try to avoid it as long as possible. Cutting workers often takes months between the time the decision is made and when separation papers are handed out.
What it means is that layoffs are often part of a company’s recovery process more than its crisis strategy, which is why job losses typically continue long after the economy has begun to turn around.
That is exactly what’s happening now. For the past two months, total hours worked in Canada have actually risen, even as jobs have been lost. Companies are asking workers to stay later and work overtime as business gradually picks up. The result is greater productivity, eventually higher profits, and in the long run, the foundation for new hiring. Believe it or not, the job market is beginning to recover, but it won’t look that way for a while yet.
GRAPH OF THE WEEK: Economists really can’t predict recessions
As renowned British strategist James Montier recently wrote in a Société Générale report, when you look at their record, it’s clear “that the three blind mice have more credibility.” As a group, economists failed to predict the last few GDP tumbles, and in general, they tend to be too optimistic.
THE GOOD NEWS
Climbing confidence
U.S. consumer confidence surged this month, driven by strong markets and improved expectations of what the future holds in store. The RBC CASH (Consumer Attitudes and Spending by Household) index took a 15-point leap to 37.5 (from 22.4 in July), following two months of declines.
Declining debt
For the fifth straight month, American consumers reduced their debt loads, paying off US$10.3 billion in debt. While that may curtail consumer spending, any return to long-term health requires that Americans first get their financial houses in order.
Hammers ready
The number of building permits issued to Canadian contractors rose unexpectedly in June by one per cent from May, to $5.2 billion. It was the second straight monthly gain. There was an increase in permits for both housing and commercial projects, raising hopes for the troubled construction sector.
A positive sign
The OECD’s composite leading indicator, a measure of economic health in developed countries, continued to climb in June, after bottoming out in February. The index rose to 95.7. When it’s below 100 and increasing, it’s taken as a sign of economic recovery.
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