Reversal of fortunes

Alberta’s labour market faces uncertainty as oil prices plummet
By Liz Bernier
|Canadian HR Reporter|Last Updated: 02/06/2015

Just a few months ago, Alberta’s natural resources sector was unquestionably the engine of Canada’s economy — and the nucleus of job creation. Alberta led the nation with employment growth of three per cent in 2014, according to TD Economics.

But since the dramatic decline in oil prices beginning in November 2014, future job prospects in the province are much less certain.

“The world essentially changed on us in the last few months, weeks because of this very important change in oil prices,” said Pedro Antunes, executive director of economic outlook and analysis and deputy chief economist at the Conference Board of Canada in Ottawa.

“We’re now facing an oil price that for this year will probably be about 40 per cent lower than it was last year.”

It’s very difficult to make predictions around oil prices because many different market factors are at work. But one thing is certain, said Antunes.

“When you cut the revenue stream of oil producers in Canada and in Alberta by that much that quickly, it’s going to have significant ramifications for the province and for the economy,” he said. “Essentially, what happens is we’ve turned off the cash flow for a lot of these big producers.”

There haven’t been many visible consequences as of yet but they are undoubtedly coming — we can probably expect rising

unemployment in the province over the next four to six months, said Todd Hirsch, chief economist at ATB Financial in Calgary.

“Going into this downturn, December’s unemployment rate was still 4.7 per cent (in Alberta) so it hasn’t really started to show up yet — at least not in the Labour Force Survey. But we have been hearing anecdotally, and in press releases from companies, of layoffs.”

Layoffs, unemployment

In January, the Canadian Association of Oilwell Drilling Contractors said employment in the oil patch could be down by 23,000 direct and indirect jobs. And Calgary-based Suncor Energy announced 1,000 job cuts and slashed $1 billion in capital spending.

If other companies follow suit, Alberta’s unemployment rate will likely start to rise, said Hirsch.

“My guess is, in a typical fashion, we’re going to see that unemployment rate kind of spike up to maybe around six to six-and-a-half per cent by late spring — May or June. And our guess at this point, or our most likely case scenario, is that in the second half of 2015, oil prices will gradually start to come back. So we’ll see that unemployment rate sort of level off and peak at about six or six-and-a-half (per cent), and gradually start to come back down in the second half of the year.”

TD is forecasting an unemployment rate of five per cent in 2015 and 5.2 per cent in 2016, while RBC predicts 4.5 per cent and 4.9 per cent over the next two years.

Wages and benefits will also likely experience some reining in, said Hirsch.

“If you just look at average weekly earnings, (Alberta) is about 20 per cent above the national average and annual increases have also outpaced the national average. I think the increases going forward will likely come down somewhat. Overtime hours will definitely be slashed and that’s a big part of that average weekly earnings. So I don’t think it will fall all the way to the national average, but I think we’ll see Alberta’s wages and expected compensation increases moderate and come closer to the national average,” he said.

The Conference Board is conservatively predicting oil prices might bottom out at under $50 per barrel, said Antunes.

“So that means essentially a loss in revenue for Alberta alone — which produces close to three million barrels a day — somewhere in the $30- to $35-billion loss in revenue,” he said. “The immediate repercussions will be that that will translate into a loss in investment… We’ve already seen roughly $10 to $12 billion in cuts announced from the big producers in terms of their investment intentions or capital investment intentions for this year.”

So far, there has been no significant change to hiring intentions in the province — but it’s a lagging indicator, said Ted Mallett vice-president and chief economist at the Canadian Federation of Independent Business (CFIB) in Toronto.

“Businesses that have already made these kinds of plans are, for now, planning to carry on with them,” he said. “It would take some extra time for a greater sense of these permanent changes in the landscape to force a business to make a hiring change.”

TFWP impact

There could also be potential impacts on usage of the government’s Temporary Foreign Worker Program (TFWP) in the province, said Hirsch.

“It will depend on how long this downturn goes on because, right now, most of those temporary foreign workers, the majority of them are taking low-paid, low-skill jobs. They’re in food and accommodation — that’s kind of the reality of it,” he said.

“If we see some temporary unemployment over the next six months, I think we will still need a lot of those temporary foreign workers to take those restaurant and hotel jobs.”

But the longer oil prices remain in a slump, the less need there may be for the TFWP, said Mallett.

“What it would probably do is lessen the impetus or lessen the need for it,” he said.

“Moreover, there’s probably going to be some challenges for certain businesses because when one does hire a TFW, you have to guarantee the employment for X period of time and businesses will, especially if they’re faced with a major cutback, they still have these obligations to the people they’ve already brought into the country.”

The ‘R’ word

The Conference Board was the first to use the word “recession” in economic forecasts for Alberta in 2015. But people shouldn’t start to panic, said Hirsch.

“It’s a funny word because it does tend to be alarmist. We’re not using the ‘R’ word yet — the Conference Board I think is the only one so far forecasting an outright contracting, a recession. Even they, though (are forecasting) a very shallow one — 0.5 per cent (contraction),” he said.

“What all the forecasters, including ATB and the Conference Board, what we all have in common is we’re all expecting a dramatic slowdown in Alberta’s economy… all the forecasts are pointed in the same direction, and that is soft growth, slower growth.”

Ripple effects

Though employers in Alberta will be facing challenges, the impact on employers in other provinces remains to be seen.

“We will see less interprovincial migration to Alberta this year — more people probably staying in Ontario and Quebec because their economies are picking up,” said Hirsch. “Employers in Ontario and Quebec will probably — hopefully as their businesses pick up — they’ll have a little bit easier time attracting workers because they won’t be leaving for Alberta in as great a number.”

The situation is a double-edged sword, said Mallett.

“I’m still on the fence on whether it’s a net benefit or a net cost to the Canadian economy. But a lot depends on what other forms of businesses will be able to do with a more modest set of energy prices.”

Savings from those low energy prices haven’t materialized too dramatically yet, but it could mean good news for businesses in manufacturing and tourism, said Mallett.

“Generally, we will see the negative impacts are pretty immediate, the positive ones will take some time to show up,” he said. “We’ve got some fundamental positives in the other parts of the country like Ontario and possibly Quebec.”

Employers should not react in haste, said Hirsch — panic is never a recipe for economic success.

“I believe the biggest threat to Alberta’s economy right now actually isn’t $47 oil — it’s actually fear. Once fear takes root in people, in consumers or businesses or boards of directors, once they’re fearful they start to make irrational decisions. That’s the biggest threat,” he said.

“Absolutely, consumers and businesses, we should all be prudent and we should be realistic — it’s going to be a rocky year and we have to maybe adjust some of our decisions accordingly. I’m not saying ignore it, but once you start to become fearful and panic-eyed about this, irrational decisions are made. And then everything kind of spirals downward, regardless of oil prices.”

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