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Michael Burt
Associate Director
Industrial Outlook, Trade & Investment |
Consensus is building that the global recession is done. Many emerging markets are seeing their growth rates return to a robust pace, Europe and the U.S. have both reported economic growth in their most recent quarterly releases, and Canada is expected to join this club when it releases its GDP statistics for the third quarter. The Reserve Bank of Australia has even begun to raise its key policy rate. However, employment in most countries has yet to show any sign of staging a significant rebound. Bring on the cries of “jobless recovery”.
While it is true that signs of job creation remain tenuous, these cries are as yet premature. The economic recovery is still in its infancy and there are a variety of risks that could still derail it. This is the key reason why employment gains tend to lag the economic recovery; businesses are cautious to staff up when risks are high and they may have recently undertaken the painful and costly step of layoffs. In the jobless recovery of the early 1990s, 30 months lapsed between the peak and the trough in employment, we are still a long way from repeating that poor record.
One full year has now passed since employment peaked in October 2008 in Canada. The subsequent decline was both abrupt and steep, with employment falling by 414,000 positions or 2.4 per cent peak to trough. While serious, this decline is smaller in percentage terms than what occurred in the recessions at the beginning of 1980s and 1990s. What is more, employment declined for a much briefer period of time. After shrinking for only five consecutive months (compared with 15 in the early 1980s), employment has shown signs of stability of recent months and forward looking indicators of employment suggest that a “double-dip” decline in employment is unlikely.
One such indicator is employment at staffing agencies, which is primarily made up of temporary help. Temporary workers are easier to hire and fire than full-time permanent employees, and since they account for a wide variety of occupations across a wide variety of industries they can be an important barometer of employer intentions. As such, changes in temporary employment can lead changes in total employment by a few months. For example, temporary employment began to rise in May of this year, presaging some of the improvement in employment that has occurred since the summer.
Temporary employment has been trending up since late spring, but the gains have been modest and it remains well below where it stood prior to the recession. This is consistent with the two steps forward one step back pattern in total employment that has occurred in recent months. Provincially the story is mixed. Some provinces, such as Ontario and British Columbia, have experienced some improvement in temporary employment in recent months. Others, such as Quebec and Alberta are still seeing temporary employment decline.
One other forward looking indicator of labour market health that the Conference Board of Canada has recently developed is the
help-wanted index. The help wanted index has risen in four of the past five months, but it remains well below where it stood at its peak in the summer of 2008. Once again this is consistent with the modest employment gains that have been reported in recent months. In fact, given the most recent improvement in the help wanted index, a gain of 9,800 jobs would be expected in November.
With Canada’s unemployment rate expected to peak just above 9 per cent early next year, up from a low of 5.8 per cent, the effect of the recession on Canada’s labour market has been modest compared to many other developed countries. Canadian employers appear to be holding on to their workers if they are able, which may be the result of the extremely tight labour market conditions that preceded the recession. In fact, Canadian GDP actually fell by more than employment through the recession, a very rare occurrence that suggests workforce retention remains a pressing issue for employers. However, fewer job losses through the recession may also mean fewer job gains in its immediate aftermath.
Forward looking indicators of employment such as temporary employment and the help wanted index suggest that robust job creation is not yet around the corner. This is consistent with our expectation for a modest recovery over the next year. We do not expect this to be a jobless recovery, but the modest pace of the economic recovery will continue to limit hiring activity over the next six to twelve months.