Dark cloud hangs over Canada’s recent rosy job numbers as high paying jobs drop

An economist is warning not to get overly excited about the unexpectedly strong net gain in jobs last month.

Statistics Canada’s labour force survey, released last week, showed the Canadian economy gained 44,400 jobs in October, outstripping economists’ most optimistic predictions.

The boost was fueled in part by a 32,000 jump in public-sector jobs, many of them temporary and connected with the federal election. The private sector added 41,300 jobs, most of them part-time, while the self-employed category dropped by 27,300.

The numbers suggest Canada’s economy is withstanding the oil and gas slump better than expected, David Madani, Canada economist for Capital Economics, says in a report this week.

But details show the jobs outlook isn’t quite as strong as the headlines suggest, Madani wrote.

“If, as we expect, the incoming data point to continued weakness in business investment, then there will be greater job losses ahead,” he said. “Accordingly, we still expect the Bank [of Canada] to eventually cut interest rates again, but not until early next year.”

In its separate Canadian economic update, Capital Economics said October’s rosy job numbers “mask a deterioration in underlying labour market conditions.

“If, as we fear, the economy continues to struggle in response to the worsening oil price slump, then growing labour market slack will add to the downward pressure on core inflation.”

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While the StatsCan’s figures show net job creation has grown, “the trend among the prime working age cohort, those aged between 25 and 54, has slowed dramatically,” the Capital Economics report said. “Prime age workers are often the highest paid.”

Parliamentary Budget Office releases gloomy outlook

A report this week by the Parliamentary Budget Office warning that slow economic growth in the next few years will increase federal deficit pressures shows the new Liberal government’s infrastructure plan is even more crucial, cabinet minister John McCallum, a former Royal Bank chief economist, told reporters Tuesday.

“That is not something to rejoice about, but it is something that underlines the need for the job-creating infrastructure investments,” McCallum said in Ottawa, according to The Canadian Press.

But Madani said there’s no evidence yet that taxpayer-funded infrastructure projects will be a huge boon to employment, an assertion emphasized in his firm’s quarterly economic report last week.

“It’s a pretty modest impact but we certainly haven’t gone through to determine what might be the impact on jobs just because I think it’s not even possible to work it out,” Madani told Yahoo Canada. “It’s too early.”

Politicians tend to claim their programs will create a certain number of jobs, he said, but the calculations are not straightforward and there’s a tendency to inflate the figures to match a best-case scenario.

While Ottawa’s commitment of $5 billion annually to upgrade infrastructure should boost government investment in the economy, it’s not enough to offset the need for further monetary stimulus, the quarterly report said.

If there’s a bright spot in the jobs picture it’s in the food, accommodation and hospitality sectors, said Madani. Thanks to a sharp drop in the value of the dollar in the last year, more Canadians are vacationing at home and foreigners, especially Americans, are taking advantage of relative holiday bargains here.

“If you work in the tourism industry, for example, then the next years will probably be quite good,” he said.

The downside, though, is that tourism-related jobs are among the lowest paying, Madani added. By contrast, jobs in the high-paying energy and mining sectors are disappearing as resource commodities experience a down cycle.

Take the mining industry, for example, Madani said. Its hourly wages are the highest of any sector and weekly earnings are almost twice the national average. But StatsCan noted natural resources lost 8,000 jobs in October and 26,000 since the beginning of this year, most of them in Alberta.

Energy and mining sectors support jobs elsewhere

Many of those jobs supported employment elsewhere in the economy, such as equipment manufacturers and services suppliers, Madani said.

“When I see the weakness coming through on the high-paying jobs that’s obviously a red flag,” he said. “Because if you think about the economy from an income-spending circular framework, then that slowdown in high-paying jobs, if that trend continues, is a negative sign for the broader economy.”

Those loses are not being offset by gains in central Canadian manufacturing. It’s been hit by the loss of orders from the energy sector but it’s also been slow to exploit the lower Canadian dollar to boost exports.

“Just because the Canadian dollar has fallen back doesn’t mean that things will improve overnight,” Madani said. “It could take several years [of] the low Canadian dollar – assuming it continues to remain low – for the manufacturing sector to turn around.”

Some of the weakness in manufacturing is structural, he explained, a product of a maturing Canadian economy where making things for export has given way to supplying services and retailing goods domestically.

Canada’s important auto sector, despite some recent investments, is losing out in overall production to lower-cost countries such as Mexico and the U.S. states.

Many Canadian manufacturers also did not take advantage of the higher dollar to import new equipment that might boost productivity, Madani said. That in part was due to the hangover from the 2008-09 financial collapse, which created global overcapacity and a reluctance to invest money with uncertain prospects of a return.

“Clearly there still are some lingering competitiveness issues that still are adding to the structural decline of manufacturing,” Madani said.

Economic growth, and therefore jobs, in a developed country like Canada depend on households and businesses feeling confident enough to borrow and spend. Uncertainty saps that confidence.

“There’s nothing really that policymakers can do about it,” said Madani.