BUSINESS

Shrinking Canadian Corporate Profits A Harbinger Of Layoffs Ahead

02/25/2016 03:22 EST | Updated 02/25/2016 03:59 EST
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Toronto, Canada, skyscrapers with CN tower in background

Canadian businesses are seeing shrinking revenues and shrinking profits, and that spells trouble for the labour market.

Statistics Canada reported Thursday that corporate profits were down 6.7 per cent in 2015, the first annual decline since the financial crisis of 2008-09. Companies' operating revenue shrank by 1.1 per cent.

“Poor corporate profitability may signal some upcoming cost containment and perhaps outright cost-cutting measures, particularly in the resource sector,” TD Bank senior economist Fotios Raptis wrote in a client note. “This suggests … a potential softness in labour market conditions, consistent with our economic outlook.”

The resource sector has already seen considerable layoffs. New data from StatsCan shows oil, gas and mining shed 15 per cent of all its jobs in the past year, or nearly one in six workers.

But that survey had some good news for the labour market: The number of jobs in Canada jumped a respectable 36,000 in December. That’s a stronger reading than StatsCan’s earlier and more widely reported labour force survey, which estimated 23,000 new jobs in December. Overall, the number of jobs in Canada is up by 1.2 per cent over the past year — surprisingly strong, given that there was a recession last year.

corporate profits canada

Corporate profits in Canada have shrunk in four of the past five quarters.

But declining corporate profits could put a damper on hiring going forward. The StatsCan data shows profitability problems aren’t limited to oil and gas — profits are down in 13 of 22 industries, including manufacturing (down 30.6 per cent) and the financial sector, where profits plunged 9.6 per cent in the last quarter of 2015, though they’re still up from a year ago.

The oil, gas and mining sector is running at a loss. It cumulatively lost $1.6 billion last quarter, the largest quarterly loss yet in this resource slump.

Raptis said it’s “disappointing” that only a handful of companies have benefitted so far from the low loonie, which was supposed to help the economy by making Canadian exports less expensive in the global marketplace.

“However, our research has found that it can take some time for exchange rate effects to make themselves felt, and so we expect some uptick in the profitability of currency sensitive sectors,” Raptis wrote.

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