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JOBS: a new storm in the economic crisis

OTTAWA, WASHINGTON -- Canada's job market is being slammed by the worsening U.S. recession, and is now poised for a hit from slumping energy prices.

The year-old recession in the United States has entered a more serious phase that is likely to drag on for another year, as massive job losses piled up much more quickly than forecast.

Over half-a-million jobs disappeared in November, the biggest drop since 1974 and the 11th month in a row for job losses that seem to be picking up speed.

The deteriorating job picture is a clear sign, many economists said, that the recession will be worse than expected. "This is almost indescribably terrible," said Ian Shepherdson, chief U.S. economist at High Frequency Economics. "The pace of job losses is accelerating alarmingly."

Canada suffered its biggest monthly job losses last month since the recession of 1982 as 70,600 positions disappeared. Ontario's manufacturing sector is taking a direct blow from collapsing demand in the U.S., claiming about half of the November job losses. Unemployment crept up to 6.3 per cent, still near historical lows but also half a percentage point above the beginning of year.

And the U.S. is far from the only weight on Canada's job picture. The services side of the economy, which is more isolated from U.S. demand, also shed 38,000 jobs in the month - a sign that the sources of Canada's economic weakness are not just the United States, but also a deceleration in consumer spending, business investment and the housing market, economists said.

Even the silver lining of the current job numbers, the remarkably low unemployment rates in Alberta and Saskatchewan at 3.4 per cent and 3.7 per cent, is at risk. As energy prices fall, Western Canadian companies are scaling back their capital budgets and cancelling and postponing major projects, and some economists are warning that the oil and gas sector will see slumping employment as prices continue to skid.

Crude oil prices fell to $40.81 (U.S.) a barrel in New York yesterday, down 25 per cent on the week and touching their lowest level since December, 2004. Prices could fall below $25 if China's economy stumbles and the Organization of Petroleum Exporting Countries fails to sufficiently rein in production, said economists at Merrill Lynch & Co. Merrill Lynch said oil sands companies could begin shutting in production if prices fall below $38 (U.S.) a barrel.

And Canada's manufacturing sector's woes are far from over, with more pain to come in the auto sector. General Motors of Canada will lay off 700 employees at its Oshawa, Ont., car plant in February amid poor sales and a massive, North America-wide production cutback in the first quarter.

On both sides of the Canada-U.S. border, the job numbers added a new level of urgency for leaders already under pressure to take decisive action on the struggling economy.

Unless the new U.S. administration acts decisively, the recession risks becoming a more intractable depression, said Peter Morici, economist professor at the University of Maryland. "This was much worse than was expected and represents wholesale capitulation," he said of the job numbers. "The threat of a widespread depression is now real and present."

The difference, he explained, is that a recession is self-correcting, while a depression is not. Policy measures can soften the blow or shorten a recession, but generally, recessions resolve themselves on their own. Depressions, on the other hand, require governments to take bold measures to fix the underlying causes.

Other economists point out that in the Great Depression, unemployment in the United States was running around 30 per cent, and today is 6.7 per cent. No U.S. recession since the 1930s Depression has lasted longer than 16 months, but the current downtown seems destined to eclipse that.

Yesterday's grim jobless numbers pushed U.S. unemployment to a 15-year high, with more than 2.7 million jobs shed in the year since American's economy sank into recession. "Each of those lost jobs represents a personal crisis for a family somewhere in America,'' U.S. president-elect Barack Obama said yesterday. "We need an economic recovery plan that will save or create at least 2.5 million more jobs over two years."

Estimates of the costs of the massive stimulus plan Mr. Obama has promised to unveil within days of his Jan. 20 inauguration range from $500-billion to over a $1-trillion in the first two years.

To prevent the recession from spiralling into depression, Mr. Obama also needs to take steps to repair the U.S. banking system and to address the huge trade deficit, Mr. Morici said.

In Canada, economists reiterated their cry for government stimulus as soon as possible - preferably carefully designed programs to target weak sectors but also prevent long-running deficits.

That's the only way Canadians can hope to see an end to plunging consumer confidence that is prompting shoppers to stay home and business investment to be put off, says Krishen Rangasamy, economist at CIBC World Markets. "Until we see a serious effort at a stimulus package, it's hard to see a change of heart among consumers."

With Parliament suspended, however, the economy's only hope for now is further interest-rate cuts from the Bank of Canada. Governor Mark Carney is widely expected to move aggressively on that front again on Tuesday, but lower interest rates aren't enough to revive the Canadian economy, Mr. Rangasamy said.

Consumers "are thinking twice about spending. And if they're not spending, why produce?" he said.

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Canadian job losses

66,000

Ontario emerged as ground zero in the growing crisis, shedding more jobs than anywhere else. The losses pushed the unemployment rate to 7.1 per cent.

38,000

Service jobs are being lost at an alarming rate, indicating that economic weakness is more than simply a response to U.S. woes.

1.9 million

The number of American jobs lost in 2008 - 1.25 million in the past three months alone.

70 per cent

The majority of job losses were in the service sector, particularly in retailing, temporary work and hotel and restaurant employment. [Source: The Global and Mail]





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