Jobs: a new storm in the economic crisis
Canada's job market is being slammed by the worsening US recession, and is now poised for a hit from slumping energy prices. The year-old recession in the US has entered a more serious phase that is likely to drag on for another year, as massive job losses piled up much more quickly than forecast. Over half-a-million jobs disappeared in November, the biggest drop since 1974 and the 11th month in a row for job losses that seem to be picking up speed. The deteriorating job picture is a clear sign, many economists said, that the recession will be worse than expected. "This is almost indescribably terrible," said Ian Shepherdson, chief US economist at High Frequency Economics. "The pace of job losses is accelerating alarmingly." Canada suffered its biggest monthly job losses last month since the recession of 1982 as 70,600 positions disappeared. Ontario's manufacturing sector is taking a direct blow from collapsing demand in the US, claiming about half of the November job losses. Unemployment crept up to 6.3%, still near historical lows but also half a percentage point above the beginning of year. And the US is far from the only weight on Canada's job picture. The services side of the economy, which is more isolated from US demand, also shed 38,000 jobs in the month - a sign that the sources of Canada's economic weakness are not just the US, but also a deceleration in consumer spending, business investment and the housing market, economists said.
Even the silver lining of the current job numbers, the remarkably low unemployment rates in Alberta and Saskatchewan at 3.4% and 3.7%, is at risk. As energy prices fall, Western Canadian companies are scaling back their capital budgets and cancelling and postponing major projects, and some economists are warning that the oil and gas sector will see slumping employment as prices continue to skid. Crude oil prices fell to US$40.81 a barrel in New York yesterday, down 25% on the week and touching their lowest level since December 2004. Prices could fall below $25 if China's economy stumbles and the Organization of Petroleum Exporting Countries fails to sufficiently rein in production, said economists at Merrill Lynch. And Canada's manufacturing sector's woes are far from over, with more pain to come in the auto sector. General Motors of Canada will lay off 700 employees at its Oshawa, ON, car plant in February amid poor sales and a massive, North America-wide production cutback in the first quarter. On both sides of the Canada-US border, the job numbers added a new level of urgency for leaders already under pressure to take decisive action on the struggling economy. Unless the new US administration acts decisively, the recession risks becoming a more intractable depression, said Peter Morici, economist professor at the University of Maryland. "This was much worse than was expected and represents wholesale capitulation," he said of the job numbers. "The threat of a widespread depression is now real and present." The difference, he explained, is that a recession is self-correcting, while a depression is not. Policy measures can soften the blow or shorten a recession, but generally, recessions resolve themselves on their own. Depressions, on the other hand, require governments to take bold measures to fix the underlying causes. Other economists point out that in the Great Depression, unemployment in the US was running around 30%, and today is 6.7%. No US recession since the 1930s Depression has lasted longer than 16 months, but the current downtown seems destined to eclipse that.
(Globe and Mail, National Post 081206)
For most of us, this is looking to be the toughest period of economic duress we've ever experienced. Even the people who have a vested interest in pretending it isn't happening are starting to admit that the worst is coming.