Canada's employment picture losing luster: report

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Canada's employment picture losing luster: report

By Nirmala Menon

OTTAWA -(MarketWatch)- Canada's employment picture is losing luster even as the U.S. shows signs of improvement, with the Canadian job market now weaker than in any other non-recessionary period, according to a new report from CIBC World Markets.
The author, economist Benjamin Tal, said a likely drop in house prices will have a "far from gentle" impact on the economy and construction employment. This, together with expected layoffs in the public sector from government austerity measures, is casting a shadow on employment over the next year as uncertainties from the euro-zone crisis take a toll on economic growth.
Prime Minister Stephen Harper and his Cabinet ministers, including Finance Minister Jim Flaherty, often boast that Canada has had the best record of job creation among the Group of Seven most industrialized nations since the recession, with almost 600,000 net new jobs added since July 2009. But the economy suffered net job losses in two of the last three months, and the unemployment rate increased to 7.5% in December from 7.1% in September.
"Regardless of how you look at it, the pace of job creation in Canada is weak. In fact, on a three-month moving average basis, the job market is currently weaker than any non-recessionary period," Tal wrote in the report.
In an interview, he said the Canadian and U.S. employment markets are beginning to diverge. To be sure, the Canadian market is starting from a higher level while the U.S. is picking up from a low base. Still, "the trend is a slowing Canadian market in the environment of a marginal improvement in the U.S.," Tal said. As economic activity slows, he predicts there will be "very little job creation" in Canada over the next 12 months.
The International Monetary Fund Tuesday cut Canada's growth forecasts as the crisis in Europe plunges the euro zone into recession and drags on global output. The IMF expects the Canadian economy to grow 1.7% in 2012, slower than the 1.9% predicted previously. The forecast for 2013 was slashed to 2% from 2.5%.
Tal said job losses in the public sector will weigh, as the government cuts back spending to balance the budget. The construction sector also probably won't be a major employer with the end of infrastructure stimulus spending, and a likely slowing in the housing market. Tal isn't predicting a housing crash but "I definitely can see a situation where house prices will fall 10-15%" over the next two years," he said.
This, coupled with slowing income growth, will likely temper consumer spending as Canadians use a greater share of their incomes to service debt. Tal said incomes are rising at the slowest rate since 1995 because the quality of jobs has declined. His analysis shows that the number of high-paying, full-time jobs rose just 0.4% last year, one-quarter the pace of low-paying jobs. He said slowing income growth also explains why household debt in Canada is at record levels. 

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