Labour markets recovering, but real gains may be modest

OTTAWA — After exceeding expectations throughout the recession, Canada’s labour market may be preparing to disappoint in the recovery.

OTTAWA — After exceeding expectations throughout the recession, Canada’s labour market may be preparing to disappoint in the recovery.

With markets watching closely Friday’s release of the February report on job performance, a number of under-the-radar signals are pointing to a short-term bounce and longer-term sluggishness in employment.

The consensus of economists is for an employment pickup of 15,000 in February, although some economists says the number could come closer to January’s 43,000 advance.

“There’s a potential for a really strong report,” said Bank of Montreal economist Douglas Porter, noting the mild weather and the Olympics effect.

The longer term prospects are not as rosy, however.

Earlier this week, Manpower Canada’s survey of 1,900 employers found reluctance to begin rehiring, with only 17 per cent saying they expect to add workers this spring. Overall, the agency’s jobs outlook declined from the previous survey.

And last week, Finance Minister Jim Flaherty called for a freeze on departmental spending, meaning that Ottawa is joining several provinces and municipalities in planning to shrink the civil service.

A Conference Board analysis of stimulus spending released Wednesday estimates 110,000 jobs will have been created or saved in Ontario alone by government infrastructure stimulus that ends in 2011, which could drag down job growth after the stimulus runs out.

Another reason for tempering hopes is that despite the economy’s surprisingly strong rebound at the end of 2009, the vast majority of economists expect growth this year and next to be relatively modest.

Labour economist Erin Weir points out that last week’s federal budget forecast the average unemployment rate would hover around 8.5 per cent this year, actually higher than 2009, and well above the six per cent range that existed prior to the recession.

The budget projection actually never shows unemployment getting back to pre-slump levels, getting down to only 6.6 per cent in 2014.

“Labour market trends tend to lag output so there’s reason to fear the labour market could remain poor for some time,” Weir said.

He points out that wages have also fallen in the past year and in January were below the rate of inflation.

Ironically, the underlying reason for the dampened expectations may be that employers did not cut as many jobs as they might have during the recession. And they have front-loaded the recovery by adding 138,000 workers to payrolls in the last six months.

That suggests there’s less room for upside growth as the economy recovers.

“We didn’t cut jobs as much and we hired them back sooner than in the United States at the cost of productivity and long-run income growth,” said Derek Holt, vice-president of economics with Scotia Capital.

“(But) if we do have a jobless recovery in Canada, so what? We didn’t lose that much.”

While Holt expects 250,000 new jobs to be created this year, that will still not bring the situation back to pre-slump levels. Some economists project increases as low as the 100,000 range.

Whether that’s a jobless recovery depends on the definition used. TD Bank economist Eric Lascelles points out that given population growth, Canada must add about 240,000 jobs a year just to keep up with expanded demand.

The big surprise last year was that although the economy shrank by 2.6 per cent, employment dropped by about half that amount. The jobless rate, which had been predicted to rise to 10 per cent, stopped heading north in mid-summer at 8.7 per cent.

At the trough of the recession, the economy shed more than 414,000 jobs in Canada compared with the 8.4 million that vanished south of the border. Accounting for population differences, that works out to only about 40 per cent of the U.S. losses on a per capita basis.

“Compared to other recessions, it was an incredibly mild hit in terms of unemployment,” noted Porter, who is also not a pessimist about jobs prospects.

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