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The third quarter of 2016 continued the "new normal" for Canada's economy, which was not a positive thing! Until oil prices get up into the $70+ range, consistently, we are unlikely to see a recovery in the very important oil sector. Interest rates remain low but need to edge up in anticipation of the next recession, but the mere suggestion of interest rate increases causes a weakening in the markets. The US economy continues to improve, but we are not seeing the expected "pull through" that we have seen in the past. The Canadian dollar hovers around the 75c US mark which makes it more expensive for imports and Canada imports more than it exports.
The unemployment rate at the end of the third quarter was 7% which was a 0.2% worse than the 6.8% of Q2, but slightly better than the Q1 rate of 7.1%. During the previous 12 months Canada added 139,000 jobs which was 21,000 more than the 12 months up to last quarter. In a sign of our changing times, the majority of these were part time jobs.
The stock market continues to be volatile, and is one of the sources of concern for the Bank of Canada. For the purposes of this report I focus on the TSX and it has enjoyed a reasonable period of growth, currently at around 15,000 points as opposed to 14,100 points at the end of the 2nd quarter.
As already mentioned the oil patch continues to take a pounding and we don't anticipate much positive change before 2018. With oil starting to settle at around $50 a barrel we are not likely to see the start of any major projects. The reality is that many companies in the oil patch are considering even more cost saving initiatives including layoffs. Many companies are looking at divesting Canadian assets and investing in other geographies with less opposition and more government support. Many workers who migrated to the oil patch during the boom have left, which will make things even tougher when a recovery happens because it will be difficult to entice them back.
The Canadian dollar in comparison to the US dollar is a long way from the days when we flirted with, and passed parity. At time of writing the dollar is hovering between 75c US and 76c US, which is just a couple of cents weaker than the end of Q2. The good news is that this helps the oil patch because they sell in US dollars and most costs are in Canadian dollars. It is also helpful to our manufacturing sector, but that sector has been severely depleted over the years and Canada is a net importer meaning that overall a weak Canadian dollar is not good for Canada.
The banking sector, while a big user of talent and one of the largest employers in Canada, is also very careful. The banks continue to be very careful with their hiring and are being careful to control their staffing levels. Toronto and Montreal continue to demand talent, just perhaps a little more restrained than in other times.
The telecommunications companies are other big employers in Canada and are also very cost conscious. While they demand the best talent in order to compete, they too, are also careful about keeping employment costs under control. Some of the drivers of demand here include the highly competitive nature of the business, investment in infrastructure, technological innovation and a need to plan for a retiring "Boomer" workforce.
The US economy continues to add jobs, but at a reduced rate of about 150,000 per month. The demand for skills in the US will lure talent from Canada which is good for the individuals but not so good for Canada in the long term. What has not happened, and is different from previous economic times, is that Canada's economy has not improved along with our neighbours, which is one of the indicators of a "new normal".
The construction industry seems to be forever busy, to which anyone trying to get work done will attest. Despite the slowdown in the big jobs like the oil sands, there appears to be a constant demand caused by infrastructure upgrades in many of our cities and we have the promise of more such work funded by our growing national debt (was that my out loud voice?).
The Liberal government has been in place for about a year and are continuing to both spend and raise taxes. One example is their forced carbon tax, which is really just a money grab (does anyone really think this money won't go into regular government coffers?) and is going to cost Canada jobs and hurt Canada's economy at a time when it can ill afford it. There are some expected government projects and infrastructure spending initiatives that should benefit the private sector. In addition, spending in some ministries will be reduced as others benefit from the new agenda. Some opportunities will be seen in sectors such as health, environment and education.
The Canadian Staffing Index is an indicator of the strength of the largest provider of talent in any economy (the staffing industry) and an excellent barometer of the health of Canada's economy. The latest score for the Index was 108 in September, which was up 2 basis points from the end of Q2.
Here at Eagle the big impact on our business continues to be the oil patch, but other clients are taking advantage of a tough economy to look at their cost base. This has led to layoffs and slower hiring patterns. Year-over-year the number of people applying for jobs has increased by about 11.75%. Demand from our clients was down more than 8% year-over-year. This suggests to us that the people affected by the layoffs are now active in their job searches. We also believe that demand is very patchy, with no sectors booming in demand for professionals.
Toronto is one of the largest cities in North America with a population exceeding 6 million and the GTA (Greater Toronto Area) is home to the most head offices (almost 700) and most head office staff (around 75,000) in Canada. Consequently it is also the hottest job market in Canada and generates about 60% of Eagle's business. While it remains a busy market we have seen some impact from downsizing in large companies that has increased the availability of senior people in the market. Having said all that, if I were looking for work this is where I would like to be. The sectors that are always looking for people include the financial, insurance, government and telecommunications sectors in addition to the retail sector and the construction industry. There is also a fair amount of demand in the engineering and manufacturing space.
Western Canada and more specifically Calgary as the "oil capital" of Canada, has taken the brunt of the hit from the drop in oil prices. There have been multiple rounds of layoffs, and more are projected, with the possibility that it may be 2018 before we see a recovery. When the big oil companies are hurting there is a trickle-down effect to all of the services companies that serve them and the local economy is affected in retail and housing specifically. The NDP government has done nothing to help boost confidence in Alberta for investors. It should not be forgotten that both Saskatchewan and British Columbia have an oil sector too, and while they have been equally hit, those provinces seem to be doing better because their economies are less dependent on one sector and certainly Saskatchewan is a better managed province. We have seen reasonable, but not strong, demand for talent in Vancouver, Regina, Winnipeg and Edmonton but remain cautious about the longer term impact of the loss of oil revenues. This could affect everyone as provincial tax coffers suffer and the ancillary businesses are hit.
Eagle's Eastern Canada region covers Ottawa, Montreal & the "Maritimes". There is a better mood in Ottawa and within the Federal Government (other than the morale issues caused by a non-functioning pay system) but that has not translated into a bunch of work, as we know the contracting process is long and arduous. There is an expectation that the Liberal government will get some projects back on the books, and there is optimism that a new agenda will lead to more business in the National Capital Region specifically. Montreal is relatively unchanged, not booming but a steady demand for resources, particularly in the financial and telecommunications sectors. The Maritime Provinces have traditionally had higher rates of unemployment and this continues to be the case.
The Hot Client Demand.
At Eagle our focus in on professional staffing and the people in demand from our clients have been fairly consistent for some time. Program Managers, Project Managers and Business Analysts always seem to be in demand. It might just be our focus, but Change Management and Organizational Excellence resources are in relatively high demand too. Big data, analytics, CRM, web (portal and self-serve) and mobile expertise (especially developers) are specializations that we are seeing more and more. On the Finance and Accounting side, we see a consistent need for Financial Analysts, Accountants with designations and public accounting experience plus Controllers as a fairly consistent talent request. Expertise in the Capital markets, both technical and functional, tends to be a constant ask in the GTA. Technology experts with functional expertise in Health Care is another skill set that also sees plenty of demand. This demand fluctuates based on geography and industry sectors, so we advise candidates to watch our website and apply for the roles for which they are best suited.
Canada's economy continues to languish, and since the last recession we have been caught in a continual low interest rate, stimulus focused cycle that has never quite taken off. The more recent "oil recession" has hit Canada hard, given that we are a resource rich country and there is no near end in sight. Statistics show there are jobs being added in Canada, but the numbers are not impressive particularly when you see how the US is doing and most of those jobs are part time.
Federal and provincial governments are talking about stimulus spending and infrastructure projects, so there is an expectation this will create some boost to the economy, although I have not seen it. If interest rates remain low, as expected, and the dollar remains fairly low, then we might also see some further growth in Canada's relatively small manufacturing base.
Given that investment portfolios have recovered from the 2008 recession, we are seeing a rise in the Boomer retiree population which will create demand for highly skilled resources. With Canada's overall unemployment rate at 7%, we can deduce that the unemployment rate for trades and skilled workers to be much lower, perhaps even approaching skill shortage levels. Even in these uncertain times, we see shortages in many niche skill areas.
There are definitely still opportunities created because of those retiring Boomers and the need for companies to remain competitive. We see opportunity in the construction industry, the financial sector, the telecommunications sector and the insurance sector. We see the markets with the greatest demand as being Toronto, Vancouver and perhaps Montreal. Ottawa is showing promise and could pick up if new projects are initiated by the federal government. Government spending will also provide a temporary boost to employment as the stimulus money becomes available.
That was my look at the Canadian job market for the third quarter in 2016 and some of its influences.
Kevin Dee is the founder and Chairman of Eagle (a Professional Staffing Company)
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