Canada’s strong job growth is expected to last

Every day brings news of more layoffs. At what point does a remarkably resilient Canadian labour market finally buckle with employers cutting costs ahead of a widely expected recession?

The answer is that it will not buckle.

To be sure, the rate of job creation will slow this year from 2022’s near-record levels, and there will be layoff announcements throughout the year.

But even though the economy has been in slowdown since last fall, employment levels remain unusually high. And they are bound to remain higher than is typical of a recession.

As recently as December, the latest reporting period, Canada added an impressive 104,000 jobs.

Which means that more than onequarter of the 381,000 new jobs created in 2022 were added recently and in one of the weakest months for economic growth in several years.

The jobless rate, at five per cent in December, remained near its historic low of 4.9 per cent last summer.

“The surge in employment and rise in the labour force make this an incredibly positive (report),” James Orlando of TD Economics said in a Jan. 6 commentary on the labour market’s latest signals.

True, last year’s second half saw weakness in job creation in construction, transportation and cultural industries. But those same sectors saw strong job growth in December.

Decades-high interest rates, which will edge a bit higher after this week’s Bank of Canada increase in its benchmark rate (by 0.25 per cent to 4.5 per cent) have suppressed consumer spending and business investment.

But not enough to sap the labour market of its vigour.

“A massive excess of job openings relative to available workers is keeping a cap on the unemployment rate near term,” RBC Economics reported last month.

Experts have been waiting for a significant drop in employment levels for some time, due mostly to those higher interest rates. But like Godot it might never arrive.

Economists are forecasting a rise in the unemployment rate this year, to between six and 6.8 per cent. That’s a wide enough gap in predictions to suggest that forecasters don’t yet have a good grasp of an admittedly unusual labour market.

It’s a market vulnerable to significant employer cost-cutting but still marked by severe labour shortages.

We do know that even the highend jobless forecast above is still a bit shy of the 6.9 per cent 10-year average jobless rate before the first pandemic year of 2020.

And while no sector has been entirely spared of job loss, the biggest job cut announcements are concentrated in tech.

Big Tech accounts for the largest of the recent layoffs, announced by household names like Microsoft, Apple, Amazon, Alphabet and Shopify.

And that was to be expected. Because during a fat and happy post-pandemic for Big Tech, it went on tremendous a hiring spree.

Big Tech is now trying to unwind that over-hiring. And smaller Canadian tech firms, some of them startups, are also reducing head count.

But even in tech, the job cuts aren’t as deep as they appear.

Example: The reduction of 12,000 jobs announced by Google parent Alphabet Inc. last week roughly equals the number of jobs the company added in last year’s third quarter alone.

Meanwhile, Canada’s digital economy is expected to employ almost 2.3 million people just two years from now.

That estimate, from the non-profit Information and Communications Technology Council, suggests that Canada will need another 250,000 tech workers by 2025.

Tech jobs aren’t going away, current appearances to the contrary. It’s in the nature of tech that today’s layoff is tomorrow’s start-up, as veterans of Big Tech promptly launch their own businesses.

And while it’s true that governments will continue to postpone their promised spending on jobcreating infrastructure and housing projects, those initiatives can’t be shelved indefinitely.

As long as the country suffers a shortage of hospital beds and medical personnel, and a continued crisis in affordable housing, against a backdrop of about 1.5 million New Canadian arrivals, the imperative to build will assert itself sooner than later.

That augurs well for continued healthy levels of employment.

And to the extent that job and wage growth are constrained by today’s high interest rates — though not as much as expected, as we’ve seen — that restraining factor will be removed as central banks begin lowering their benchmark rates next year.

For now, employers are still scrambling to fill job vacancies.

As this writing, Magna International Inc. has 307 job openings in Ontario alone.

And Maple Leaf Foods Inc., Bell Canada, Rogers Communications Inc., and Royal Bank of Canada are trying to fill 240, 248, 452 and 1,543 job openings, respectively.

One of the interesting phenomena of our times is “labour hoarding,” a reluctance among most employers to let workers go.

They expect that the shortage of workers won’t ease by any meaningful amount even with a recession. They worry they won’t have enough workers when the economy kicks back into high gear after a brief and mild recession this year.

Judging from the large amount of recruiting even in today’s soft economy, the country will be in hiring mode for years to come.