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Canada’s Inexplicable Job Boom Is Probably About To End

The labour market may not be as healthy as the stunningly strong headline numbers suggest.
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If a new job is on the horizon for you, it may make sense to find one sooner than later. The recent party in Canada’s job market looks likely to come to an end soon.

At the risk of looking a gift horse in the mouth, many experts are asking themselves whether the unusually large number of jobs Canada has created recently is some kind of statistical illusion.

The country saw its strongest-ever month for job growth in April, adding 107,000 net new jobs, according to Statistics Canada. It capped off what has been a stellar year for job-seekers that has left the jobless rate near historic lows at 5.7 per cent.

Watch: Canada’s most in-demand jobs for 2019. Story continues below.

The problem is, there doesn’t seem to be any reason for this boom. Canada’s economy has grown by an unimpressive 1.1 per cent over the past year, but jobs have increased by 2.3 per cent ― suggesting to some that we may have seen some overhiring lately.

And more worryingly, signs are mounting that a pull-back in job growth is just ahead. Businesses are doing a lot less of one thing they need to do if they want to hire: Borrowing.

According to the PayNet Small Business Lending Index, borrowing by small businesses in Canada has fallen for nine straight months, and is now at its lowest level since 2012. That’s a bad sign because small business lending is considered a leading indicator ― a “canary in the coal mine,” in the words of Bill Phelan, president and co-founder of PayNet ― that shows us where the economy is headed.

PayNet Inc.

“What we can say is this decrease in lending activity is a harbinger of slower job creation, and it just means there will be less demand for hiring, because there’s less business activity going on,” Phelan told HuffPost Canada by phone.

He noted one key area in particular ― manufacturing ― is starting to pull back.

Stephen Brown, senior Canada economist at Capital Economics, predicts that hiring in manufacturing will slow from 30,000 a month to 12,000 a month as activity slows, and if that happens, Canada’s unemployment will start to rise.

“If that pace were sustained, annual employment growth would slow to around one per cent and the unemployment rate would start edging up,” Brown wrote in a recent client note.

Brown estimates manufacturers overhired by about 43,000 people recently. Uncertainty around the future of the USMCA trade deal may be prompting factories to hire workers instead of buying machinery, he speculated. For heavy manufacturers, hiring and firing is more flexible than investing in new machinery.

Grocery delivery behind job boom?

Meanwhile, retail and wholesale created 62,000 more jobs than it should have, given how slowly that sector has been growing, Brown said.

“We suspect that this relates to increased competition in grocery and food delivery services, with almost all grocers ramping up their online offerings last year and firms such as UberEats and DoorDash expanding their presence,” he wrote.

“Elsewhere, we’re at a loss to explain the 4-per-cent year-on-year rise in construction jobs, which is completely at odds with the slump in construction (output),” Brown added.

But despite all the head-scratchers in the job numbers, neither economist sees a disaster on the horizon. Brown sees the unemployment rate rising mildly to around 6.5 per cent “in the coming years,” while Phelan notes that Canadian businesses are in good shape, financially.

“They’re not in full panic mode, they’re in hunker-down mode,” he said.

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