News from the Nest: Finance & Accounting (July 2015)

July 2015
NEWS from the NEST
Finance & Accounting Edition
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The first half of the year has been a challenge here in Canada, driven largely by the struggling oil sector, which tends to ripple through the economy. General feeling is that Statistics Canada will announce a recession, given that Canada will have experienced two consecutive quarters of contraction.

Following a tough first quarter of low oil prices, mid-$40 range, and layoffs in the retail sector (Target, Sony, Mexxx) the second quarter has continued to see the effects of a depressed energy sector.

The employment rate at the end of Q2 is unchanged from the end of Q1, sitting at 6.8%. There has been a loss of about 11,000 jobs in the oil sector; however, Canada has actually added 33,000 jobs in Q2, and 176,000 jobs over the last 12 months.

As another economic indicator, the TSX has been fairly steady, despite other volatility in the markets. At the end of Q2, the TSX was at about 14,500 which was down about 500 points from the 15,000 reading at the end of Q1.

As already mentioned, the price of a barrel of oil has plummeted and is currently sitting around $55 a barrel, but at the end of Q1 was below $50. This had a significant impact in the oil patch, resulting in cut backs, reduction in spending and layoffs. When coupled with a low Canadian dollar, however, it is not ALL bad news, and Canadian manufacturers and exporters are benefiting.

The financial sector is one of the largest employers in Canada and continues to be a busy user of talent. This sector is centered primarily in Toronto, but with a significant presence in Montreal. There are many reasons why this sector remains busy including its highly competitive nature, evolving technologies, regulatory change and volatile markets.

The telecommunications sector is another big employer in Canada in a very competitive world. Differentiation is achieved through infrastructure, technology advancements and new offerings. In addition, they are dealing with the effects of an aging workforce and the retiring baby boomers.

The construction industry is a large consumer of labor and remains a great place to find work, both in the trades and in the head offices of the large companies. You can see cranes dotting the landscape in most major cities with infrastructure projects, office towers and condo developments. The drop in oil prices has cost jobs in the oil sands and other large projects but in general, if people are willing to travel there is work to be had. There continues to be high demand for “trades” in the home renovation and small scale construction world.

Despite the need for governments to contain costs, we have seen a fairly steady demand in Federal, Provincial and Municipal Governments. They are huge employers, and people with the right skills are always in demand. The required downsizing is generally achieved through attrition and there is always work to be done. Regulatory change, policy development and general administrative needs dictate the need for a large and skilled workforce that receives competitive incomes and very attractive pensions and benefits. As we get closer to Federal and Provincial elections, the projects are slowing down and funding is harder to get. We expect to see a slowdown in this sector over the next six months. It is difficult to say what will happen in Alberta with an NDP government that has no experience governing. The general consensus seems to suggest a steep but fairly long learning curve that will cost jobs.

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 index suggests that the slowdown in the demand for talent we saw in Q1 continued into Q2. Increased demand for staff augmentation resources is often the first sign of recovery, and we are not yet seeing that.

Here at Eagle we have seen significant impact on our Western Canada business; however, other markets remain fairly steady. Following a first quarter drop of 30% in orders, we saw a further dip of almost 10% in Q2. The impact has been almost exclusively in Alberta and Saskatchewan. While other markets have been fairly stable there has been no offsetting increase in demand.

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