Some Canadian firms said they would keep hold of their employees even if the economy slowed down because they didn’t want to go through the effort of rehiring later on, amid layoffs by Twitter and Meta and recession worries. Despite the economy starting to sputter, Canada added a net 108,300 jobs in October. Over the summer, Canada’s unemployment rate hit a record low of 4.9%; it has since crept up to 5.2%.
Mark Seymour, CEO of Prescott, Ontario-based trucking company Kriska Transportation Group, stated, “I don’t anticipate layoffs at all.” According to Seymour, Kriska had 1,200 employees, which was insufficient to meet demand until a few months ago. According to Seymour, a leading indicator, trucking activity has now decreased by around 5% from early this year. Seymour claimed that his business transports goods for a significant automaker that anticipates being able to increase production once more soon. Seymour said, “They’ve told us to get ready.
David King, senior managing director for recruiting firm Robert Half, added to the idea by telling Reuters that some businesses are considering somewhat reducing their sales operations due to customer apprehension caused by economic stories and sluggish demand. However, there is a high demand for professionals overall. King said, “I believe the candidate side of the equation still holds the balance of power.”
Governor Tiff Macklem reaffirmed on Thursday that while the unemployment rate would increase from historic lows and Canada’s economy would slow significantly over the upcoming months, it would not be a severe recession. “There is potential to chill the labor market without creating the type of significant increase in unemployment that we have historically observed during recessions,” he said. “Because the labor market is so hot and we have an abnormally high number of unfilled positions.”
Certain industries will be impacted more severely than others. The collapse of Canada’s housing market will affect real estate, banking, and construction workers, and tech companies like Shopify Inc. have already made cuts. In Canada, there are slightly over a million jobless individuals and close to a million unfilled positions. Healthcare and high-contact service industries, together with industries that rely heavily on skilled trades like manufacturing and construction, have the most available positions.
Businesses in Canada anticipate a recession. What does that imply for employment?
According to a Bank of Canada poll, the majority of Canadian firms anticipate increasing their payrolls over the coming 12 months even as they prepare for a potential recession. According to the third quarter Business Outlook Survey by the central bank, which was issued on Monday, the majority of Canadian firms expect to continue recruiting over the next 12 months, while a “growing minority” want to keep their existing employee levels. The main obstacle to their recruiting plans, according to business executives who responded to the study, which was carried out between August 15 and September 9, was the difficulties in locating competent people.
According to Statistics Canada’s most recent employment data, the labor market in the nation remained tight in September, and the unemployment rate decreased marginally to 5.2%. According to the central bank’s study, there has been a general softening of business confidence in Canada, with many companies anticipating slower sales growth due to increased interest rates and sluggish demand.
Jobless recession is likely: economist
Although the percentage of companies wanting to reduce their payrolls increased in the most recent poll, Stephen Brown, senior Canada economist at Capital Economics, told Global News on Monday that it is “a bit of an aberration” to see hiring demand increase as revenue expectations decline. According to Brown, the Bank of Canada will need to see a decline in the labor market before its job of balancing the economy is complete. However, the survey did show that businesses were less optimistic about wage growth, which he said might be good news for Canadian workers.
It does, according to Brown, “support the notion that we may see an almost joyful recession when economic activity declines but employment stays up very well.” These findings are in line with recent predictions made by the Royal Bank of Canada and Deloitte, which predicted a recession with fewer job losses than prior downturns. According to Craig Alexander, chief economist at Deloitte Canada, businesses would be less willing to fire employees during a recession because of the tight labor markets, out of concern that they wouldn’t be able to hire replacement workers after the downturn.
Forecasts for slower growth don’t change the optimistic outlook for the business. According to the survey, businesses involved in the housing industry anticipate lower sales growth as interest rates rise, while businesses in other industries now anticipate slower but still healthy sales growth. The survey stated that although many businesses foresee a recession, those unrelated to housing activity and other household spending do not anticipate it having a significant impact on demand for their goods and services. A recession is also anticipated by the majority of consumers during the following 12 months.
Interest rate implications from the Bank of Canada
Although there are some early indications that pressures on wages and prices are moderating, the poll found that corporate inflation forecasts are still strong. While longer-term expectations have lowered, consumers still anticipate larger price increases in the immediate future, according to a separate study. Given the recent decline in petrol prices, Brown said it is “disheartening” to see Canadians continuing to anticipate increased inflation shortly.
While Brown said the Bank of Canada should be pleased that people believe inflation will eventually return to target, he said that short-term expectations will decide how much Canadians will want in terms of salaries.
The central bank aims to temper these expectations by boosting interest rates to prevent greater earnings from being reflected in prices, which would feed inflation in an unsettling cycle. Since March, the Bank of Canada has increased its policy rate by 300 basis points. The money markets anticipate an additional 50 basis point increase to 3.75 percent at the bank’s upcoming decision on October 26.
Brown stated that the two surveys released on Monday increase the likelihood of a 75-basis-point increase the following week, though Capital Economics does not currently predict that. He won’t change that call until he sees the most recent annual inflation data from Statistics Canada on recently.
The Bank of Canada will need to keep its “foot on the accelerator” due to the rise in consumers’ one- and two-year inflation expectations, according to economist Ksenia Bushmeneva of TD Bank in a note to clients on Monday. TD is still calling for an increase of 0.5 percentage points.
Bushmeneva wrote, “There is an urgency to tame inflation as it is straining consumers and is unmooring shorter-term inflation expectations.” The easing growth expectations in the business survey should be enough of a signal for the central bank to stick to a 50-basis-point increase, according to a note by CIBC economists Andrew Grantham and Karyne Charbonneau on Monday. The pair did issue a warning that the bank might move higher if inflation took a “big upside surprise.”
Will a recession hit Canada?
According to Pedro Antunes, chief economist of the Conference Board of Canada, the IMF’s updated predictions predicting a more dramatic downturn are not always negative news. He made this statement to Global News on Tuesday. According to Antunes, who points to the early success of tightening cycles from the Bank of Canada and its central bank counterparts internationally, the projection for the world’s economy for the coming year is 2.7%, which is just marginally less than the average annual growth rate of 3%.
“Despite all of the dire predictions we are hearing in that (IMF) report, I believe what it is telling us is that their initial outlook is for this kind of successful monetary policy, soft landing. And we believe that means continued positive growth for Canada,” says Antunes.
He continued by saying that Canada is “definitely sensitive” to economic pressures from outside its borders, particularly from the United States, which is its biggest trading partner. According to Antunes, the global fear of a recession is one of the factors driving up the value of the U.S. dollar as investors seek “refuge” in the dependable dollar.
According to him, this is devaluing the Canadian dollar in comparison, which raises the price of imports from Mexico for consumers. Antunes does not currently anticipate Canada to enter a recession, which is traditionally defined as two consecutive quarters of negative growth. However, he does predict that consumer spending will be “soft” for the next few quarters due to the weak loonie and rising interest rates dampening demand.
According to Antunes, the Bank of Canada will be able to suspend its interest rate increases next year and allow the greater cost of borrowing to dampen growth without completely squelching it if global inflationary pressures continue to decline as the IMF anticipates.
Despite their divergent opinions on whether Canada would benefit from a soft landing, Antunes and Alexander agree that any downturn will be limited by the country’s tight labor market. In many cases, layoffs and rising unemployment cause Canadians to feel the “pain of a recession,” according to Antunes.
He claims that any downturn might see employers “reticent” to let go of workers because they might not be able to replace them when economic growth resumes, but with the unemployment rate at a low 5.2% in September and many businesses unable to fill vacancies, he makes this claim.
Alexander claims that many employers will be “hoarding labor” even as the outlook worsens as a result of his predictions for a contraction being shared with businesses. They won’t lay off employees as frequently as they would typically do during a downturn in the economy, he claims, out of concern that the labor shortages would return swiftly. “For Canadians, it might not feel like much of a downturn, and that might help the economy become more resilient.”
edited and proofread by nikita sharma