January 9, 2008 / 8:33 PM / 10 years ago

Canada due for downshift in job growth: analysts

4 Min Read

<p>Construction workers climb the steel girder skeleton of the Royal Ontario Museum's addition in Toronto October 2, 2006. After three months of breakneck jobs growth, Canada is due for a humbler employment report for December as public-sector hiring wanes and businesses brace for a possible U.S. recession.J.P. Moczulski</p>

OTTAWA (Reuters) - After three months of breakneck jobs growth, Canada is due for a humbler employment report for December as public-sector hiring wanes and businesses brace for a possible U.S. recession.

Statistics Canada will release the December employment figures at 7 a.m. EST on Friday. Analysts surveyed by Reuters forecast, on average, 15,000 more jobs last month with an unemployment rate of 5.9 percent, unchanged from November.

The economy added 157,000 jobs over the past three months to the surprise of economists who had been more pessimistic.

But that rate is not sustainable, they say.

"We're creating jobs faster than the U.S., which is 10 times our size. It's abnormal," said Stefane Marion, assistant chief economist at National Bank Financial in Montreal.

Marion expects a decline in jobs in December but warned against any dire readings of a negative number.

"Its not necessarily a sign that there is a significant deterioration in the Canadian jobs market.... Something between 10,000 and 15,000 (additional jobs) makes more sense in the current context where we have decelerating growth in our main trading partner," he said.

Canada's heated labor market has, so far, been a shining example of the country's resilience to the troubles in the U.S. economy stemming from the subprime mortgage debacle.

But as fears of a U.S. recession grow, more and more people are predicting Canada's economy will also slow substantially in 2008. That could force employers to keep hiring to a minimum or to even lay off workers in more vulnerable sectors like manufacturing and forestry.

In December, harsh weather slowed down construction activity and that will also likely be reflected in the jobs numbers. Housing starts fell 19.6 percent in December, a setback analysts attributed to unseasonably cold weather, tighter credit conditions and a new land-transfer tax in Toronto.

"If it happened to housing starts, it can happen to employment," said George Vasic, chief Canadian economist at

Ubs.

Vasic said a "normal" pace of job growth is roughly 20,000. "Given the economic downshifting, even that would be higher than what you would expect," he said.

One clue that the jobs market is not as robust as the headlines suggest is the fact that almost 90 percent of the jobs created in the past four months were in the public sector, said Karen Cordes, an economist at Scotia Capital.

Private-sector employment, considered a better barometer of economic growth, grew by 98,400 between January and November of last year compared with 333,300 for the same period in 2006.

As government hiring dissipates in the months to come, the jobs numbers will look all the more anemic. Layoffs in the auto sector will also take effect in the first quarter of 2008 and manufacturers will continue to shed workers as the strong Canadian dollar squeezes their profits.

"However, we do not expect to see the level of employment decline in December, nor in 2008, as solid underlying economic fundamentals, labor shortages and demographic shifts continue to support the current tightness in the labor market," Cordes said.

Editing by Rob Wilson

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