Hiring and investment intentions have reached a low point not seen since 2009, according to a Bank of Canada report.
Fewer organizations are planning to add workers over the next 12 months, while plans for layoffs are more widespread, found the survey of about 100 firms.
Not surprisingly, a significant factor behind the drop is the continuing decline in the natural resources sector.
“The negative effects of the oil-price shock are also increasingly spreading beyond the energy-producing regions and sectors,” said the quarterly report.
“It was a really bleak survey,” said Linda Nazareth, a Toronto-based economist. “It really is emanating from the resource sector, so it’s not the whole country. But with huge layoffs in resources, obviously, and everyone else kind of just waiting, it makes all the numbers look worse. If you look at the investment numbers, they’re heavily influenced by resource and investment spending.”
On a national scale, Canada has been underperforming, according to Todd Hirsch, chief economist at ATB Financial in Calgary.
“We continue to underperform economically. We’re still seeing challenges in the manufacturing sector and despite the low Canadian dollar, those exports have really yet to perform or take off. We might still see that in 2016 — especially if the dollar continues to fall. But we have really struggled in the manufacturing sector,” he said.
“The resource sector, which is kind of the other main pillar of Canada’s economy, that’s under even more strain at the moment. And, obviously, the petroleum sector concentrated out in the west — also Newfoundland and Labrador — that is the weakest link in the Canadian economy.”
Sectoral, regional differences
In breaking down the numbers by sector and region, the first and most obvious factor behind the negative outlook is Alberta’s oil and gas sector, said Finn Poschmann, president and CEO of the Atlantic Provinces Economic Council in Halifax, and the impacts are starting to be seen now.
“The ramping down in capital spending in oil and gas, mostly in Alberta and Saskatchewan… has magnified or increased. The decrease has increased — spending intentions are down even more than they were in 2015, and this of course has big implications on the labour side,” he said.
Those declines in spending are translating to significant layoffs, said Hirsch.
“We are seeing job losses in Alberta — not just in the petroleum industry but in all the peripheral industries that feed into the oil and gas sector in Alberta and Saskatchewan.”
The impact hasn’t been entirely confined to the western provinces either, said Poschmann.
“(It’s) much the same story in the medium-term for offshore oil in Newfoundland where some projects are winding down and some are underway. But new exploration — which is slated for later in this decade — has not seriously launched yet,” he said.
“That said, there have been offshore expenditure commitments both in Newfoundland and Labrador and in Nova Scotia. So in the medium term, the offshore work will continue.”
Other sectors are challenged, said Poschmann.
“(It’s) even less optimistic for the mining sector, where minerals production in Labrador, Quebec, Ontario are all taking a hit on prices,” he said. “In financial services, major financial institutions in Canada have all been doing some structural rethinking… they’re trimming their management structures and they’re becoming more segmented in service lines.”
That has impacted employment in the financial services sector, though not nearly as dramatically as other sectors, said Poschmann.
And it’s not yet clear how deeply sectoral struggles will impact unrelated sectors, said Nazareth.
“My real concern is how does this flow through to the economy? How long does that take to influence much more than resources?”
It’s not entirely bad news, though — there are still some regions and sectors demonstrating resilience and even slight growth. Central Canada is in relatively good shape, said Nazareth.
“I don’t think that central Canada is that vulnerable right now. They are really closely aligned with the U.S. and the U.S. is looking not bad. They are raising interest rates because things are looking a lot better. And also the Canadian dollar being lower is a bit of a shield from everything — we’re talking about our exports looking better, and we’ll probably get decent export numbers from central Canada particularly,” she said.
“So it’s not an all-bad outlook, though some of the headlines are obviously going to be very bleak, and that weighs on confidence.”
Some areas out east will see hiring this year, said Poschmann.
“In some sectors, for instance regionally, particularly in Nova Scotia, the monstrous shipbuilding contract… and the scale of the contract is so large that the impact is quite visible in the Halifax landscape.”
Perhaps most significantly, British Columbia has seen some growth, said Hirsch.
“The bright spot at the moment is British Columbia. They’re the one province that posted strong growth in 2015 and is almost certain to lead provincial growth rates again in 2016. They’ve been a bright light, they’ve been benefitting from the low dollar from international investment into the lower mainland of B.C. A lot of construction activity, a lot of high-tech activity,” he said.
“But, sadly, the lower mainland of British Columbia alone is not enough to sort of carry the national job market. It’s not providing enough jobs to offset losses elsewhere.”
It’s not difficult to take a somewhat pessimistic bent going into 2016, said Poschmann.
“Certainly the hiring outlook for 2016 is not very pretty. You see that in the (Bank of Canada) survey… and that survey corresponds very well with (the observations) of different sectors and different regions,” he said. “The somewhat pessimistic view the survey portrays seems to be borne up by the evidence that I see.”
And there isn’t much indication the oil and gas sector will turn around in the first two quarters, said Hirsch.
“We suspect that in 2016, the first half of the year, we’re going to continue to see a situation of job losses in the petroleum industry in Alberta,” he said. “For Alberta, I would say that the deepest and darkest days of this downturn are going to happen in the first half of 2016. The rest of central Canada is not in recession, but I think it will continue to spin its wheels in Q1 and Q2 as well.”
Hopefully, things will begin to turn around later in the year.
“We’re hopeful that by the end of 2016 that we will see stronger commodity prices, stronger oil prices, and that manufacturers in central Canada will start benefitting from the stronger dollar and find some competitive advantage,” said Hirsch. “We’re hoping to see nationally that the job market shows better results than it showed last year, hopefully helped out by better results in the manufacturing sector and in business and personal services.”
In the meantime, employers should take a more long-term view when it comes to hiring and recruitment, said Nazareth.
“Employers should be looking much longer down the business cycle. If it’s easier to get good people right now, I think you should snap them up because it really won’t be in (employers’) favour forever. I think we forget this every time we have a recession — hiring shuts down and when things get better, we don’t have the right people,” she said.
“I understand caution, but it doesn’t always work.”
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