Canada’s job market had a stellar November, with 59,000 net positions created — six times what economists had predicted — while the jobless rate fell to 7.2 per cent, nearing lows not seen since the economic crisis of 2008.
In a year of up-and-down job markets and lacklustre economic growth, the solid November numbers were welcome relief. But don’t run out and get that second mortgage just yet, because evidence is beginning to build that the strongest sources of job growth in our economy are at risk of fizzling out, and soon.
The two largest sources of job growth since the year 2000 have been construction and the mining, oil and gas sector. While the overall number of jobs in Canada during that time grew 21 per cent, construction jobs grew 63 per cent and mining/oil/gas saw a 67 per cent increase in jobs. (Manufacturing jobs shrank an alarming 28 per cent in that period.)
Those two areas more than tripled overall job growth in the country. That would be excellent news, were it not for the signs that these are exactly the two areas where job growth is now under threat. The twin powerhouses of real estate and natural resources could turn out to have been the beneficiaries of economic bubbles that are about to burst — or already have.
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First, construction jobs. These are largely dependent on conditions in the real estate market. In the last decade, as house prices grew rapidly and steadily, Canada’s economy came to be more reliant on construction jobs than it has been in records stretching back to the 1970s.
Construction-related jobs now account for 7.4 per cent of all jobs in the country, a number that is arguably disproportionately high. In the U.S., construction jobs never exceeded 6 per cent of all jobs, even at the peak of the country’s housing bubble half a decade ago. The U.S. rate has since fallen to around 4.2 per cent.
And now Canada’s housing market is starting to come down. As developers delay their plans, this phenomenon is translating into job losses. Even as the total number of jobs in Canada grew by 1.8 per cent in the year to November, the number of construction jobs fell by 1.2 per cent. As recently as a year ago, as house prices were heading towards their peak, construction jobs were growing at a 4.2 per cent annual pace.
Analysts are warning of worse to come. In a report issued in September, the Conference Board of Canada predicted a grim 2013 for the construction business.
“The residential market … will no longer be able to fuel Canada’s post-recession growth,” the Conference Board's Michael Burt said. “Next year is expected to be particularly lacklustre, as housing starts and industry profits are both forecast to decline.”
A month earlier, Scotiabank warned that Canadians can expect to see weakness in the real estate market for a decade to come, noting that it took eight or nine years for the market to recover from the last two housing busts.
“Historically, long cycles of rising home prices have been followed by extended periods of persistent softness, allowing affordability to be gradually restored and generating renewed pent-up demand,” Scotia said.
The one real hope that could rescue construction jobs is the commercial market. Building permit numbers this fall have been disappointing, but permits for non-residential buildings have been doing far better than residential ones.
Secondly, mining, oil and gas jobs. These are largely dependent on commodities prices. A dozen years ago, when oil prices were below $20 a barrel, much of the oil sands deposits weren’t even counted as part of Canada’s existing supply of oil, and much of the current employment there didn’t exist either. As prices soared to $100 a barrel and beyond, the massive cost of investing in oil sands extraction became worth it, and jobs in the oil patch boomed.
The problem is, this can work the other way too. If commodity prices fall too far, jobs related to commodity extraction will start disappearing. Oil prices have been under downward pressure for much of the year. After spending several years around the $100-per-barrel mark, oil prices this year dropped down to around the mid-$80s.
And now, a growing number of economists are predicting a bust-out in commodities prices. Citibank’s head of commodities analysis, Ed Morse, has been warning in recent weeks that he sees the end of the commodities “super-cycle,” and a decade-long climb in prices of oil and minerals is about to reverse itself.
That’s hardly a consensus opinion, though. Goldman Sachs is telling its investor clients to pile into commodities because it sees prices bouncing back next year.
“As economic growth improves into the latter half of 2013, we believe current fundamentals are likely to create near-term shortages,” Jeffrey Currie, head of commodities research at Goldman, said last week. (Of course, there is some question as to what Goldman Sachs' investment advice is worth.)
And so far, job growth in this area is holding up. The natural resources sector (forestry, fishing, mining, quarrying, oil and gas) saw a 4.9 per cent increase in jobs in the year ending in November. But then again, that looks a lot like the stats for construction jobs a year ago.
And now major oil sands producers are scaling back their expansion plans for next year, and they’re beginning to use the word “cautious” to describe their expansion plans.
If their new-found caution proves to be justified, Canada may be faced with a double whammy of bursting bubbles, that will leave plenty of people in the unemployment line.