Economic analysis


Layoffs are often part of a company’s recovery process more than its crisis strategy

EconowatchLast January, Maclean’s published a cover story warning that the Canadian economy would likely lose a quarter of a million jobs this year. The economic storm was just beginning to reach hurricane force, but Canada was still in relatively good shape. The government was still insisting that our world-leading banks would shelter us, and a couple of rival publications chortled at our economic warning and suggested we were being alarmist. I wish.

It turns out we underestimated the threat to Canada’s job market by a fair bit. As of July, roughly 331,000 jobs have been lost in 2009, the unemployment rate has gone from 6.6 per cent to 8.6 per cent, and if not for the fact that thousands of Canadians now consider themselves “self-employed,” the carnage would look far worse.

But just as the early days of the recession created confusion and doubts, so too are these later stages. The latest bad news about jobs (45,000 lost in July) came out just a day after several major newspapers trumpeted the end of the recession as front-page news. Even resolute bears like economist David Rosenberg were beginning to see encouraging signs of a recovery. The jobs numbers hit like a freezing cold shower. “If the recession indeed ended in July, Canadian employers didn’t seem to get the message,” CIBC World Markets chief economist Avery Shenfeld wrote in a report to clients.

It’s reasonable to fret about the fate of Canadian workers, but this is all part and parcel of how economies re-build themselves.

The process of firing workers is a slow one for most companies. There are forecasts, and board discussions, and HR processes to go through. And most managers try to avoid it as long as possible. Cutting workers often takes months between the time the decision is made and when separation papers are handed out.

What it means is that layoffs are often part of a company’s recovery process more than its crisis strategy, which is why job losses typically continue long after the economy has begun to turn around.

That is exactly what’s happening now. For the past two months, total hours worked in Canada have actually risen, even as jobs have been lost. Companies are asking workers to stay later and work overtime as business gradually picks up. The result is greater productivity, eventually higher profits, and in the long run, the foundation for new hiring. Believe it or not, the job market is beginning to recover, but it won’t look that way for a while yet.

GRAPH OF THE WEEK: Economists really can’t predict recessions

As renowned British strategist James Montier recently wrote in a Société Générale report, when you look at their record, it’s clear “that the three blind mice have more credibility.” As a group, economists failed to predict the last few GDP tumbles, and in general, they tend to be too optimistic.

Economists really can’t predict recessions


Climbing confidence
U.S. consumer confidence surged this month, driven by strong markets and improved expectations of what the future holds in store. The RBC CASH (Consumer Attitudes and Spending by Household) index took a 15-point leap to 37.5 (from 22.4 in July), following two months of declines.

Declining debt
For the fifth straight month, American consumers reduced their debt loads, paying off US$10.3 billion in debt. While that may curtail consumer spending, any return to long-term health requires that Americans first get their financial houses in order.

Hammers ready
The number of building permits issued to Canadian contractors rose unexpectedly in June by one per cent from May, to $5.2 billion. It was the second straight monthly gain. There was an increase in permits for both housing and commercial projects, raising hopes for the troubled construction sector.

A positive sign
The OECD’s composite leading indicator, a measure of economic health in developed countries, continued to climb in June, after bottoming out in February. The index rose to 95.7. When it’s below 100 and increasing, it’s taken as a sign of economic recovery.


Dude, where’s my job?
The recession is hitting young workers particularly hard. In July, the student unemployment rate jumped an incredible 7.1 percentage points in a single month, to settle at a depressing 20.9 per cent. Meanwhile the labour force for those ages 15 to 24 (a measure of those either working or actively looking for work), shrank at an annual rate of two per cent last month. One possible reason: older workers hit by dwindling retirement savings are flooding back into the job market. Those aged 55 and over have seen five per cent employment growth this year.

More banks go bust
Another week, another round of U.S. bank closures. Regulators shut down two banks in Florida and another in Oregon, bringing the number of banks that have failed this year to 72. That’s the highest rate of bank closures in 17 years, and it’s costing the cash-strapped Federal Deposit Insurance Corp.—which insures deposits at nearly 8,300 institutions—big bucks. This year’s failures have now cost the insurance fund US$15 billion.

All dried up
One of the most obscure but reliable economic indicators, the Baltic Dry Index, had its worst week since the deepest depths of the financial crisis last October. The index tracks maritime shipping costs, and they fell 17 per cent last week. Analysts blamed the decline on slowing demand from China for dry goods, such as iron ore and coal.



  • The recession is now officially hitting people from cradle to grave, literally. Sociologists say the grim economy is to blame for the first decline in U.S. birth rates in almost a decade, as families defer having kids until things improve. Meanwhile, some counties in the U.S. are struggling to deal with the cost of handling unclaimed bodies, which family members are abandoning because they can’t afford to have them buried.
  • Media giant News Corp. is resorting to some bold measures in the face of plummeting advertising dollars. The company said it will begin charging for all online content from its newspapers and news channels. It won’t make readers happy, but it could help return the business to profitability.
  • The economy may be starved of growth, but it can’t dampen the world’s taste for Big Macs. McDonald’s just reported that global sales were up by more than four per cent last month. In Europe, sales were up over seven per cent. Its new coffee offerings have helped the restaurant chain, but the traditional—not to mention inexpensive—burgers and fries are still a big draw for the recession-weary.
  • Coffee shops, with their cosy atmosphere and free wireless Internet access, have long been popular spots for the unemployed to look for work. But the number of laptop squatters in New York cafes has gone up dramatically as job losses continue. Some shops have started banning laptops and asking patrons to start buying more food and beverages—or move along.


Even though many economists have declared the recession over, America is still losing jobs. The good news is that jobs aren’t disappearing nearly as fast as they were a few months ago—and the unemployment rate even dipped to 9.4 per cent in July (from 9.5 per cent in June), the first decline in more than a year.

“July’s employment report is the gift that keeps on giving.” —Paul Ashworth, senior U.S. economist, Capital Economics

Nigel Gault“The economy is still shedding jobs, but the pace of decline is slowing, consistent with the view that output has hit bottom and growth is now resuming.”—Nigel Gault, chief U.S. economist, IHS Global Insight

“The July jobs report is another sign that the worst recession in eight decades is winding down.”—Sherry Cooper, chief economist, BMO Capital Markets

Barack Obama“We’ve rescued our economy from catastrophe.” —U.S. President Barack Obama

“Long-term unemployment is becoming an increasingly pressing issue.”—Richard F. Moody, Forward Capital

“What is still very much open to question is how fast the move will be to stabilization of payrolls, and eventually to job growth. We believe the process will be a slow one.”—Joshua Shapiro, chief U.S. economist, Maria Fiorini Ramirez Inc.

“The American consumer is by no means out of the woods, but we are moving in the right direction.”—Richard DeKaser, chief economist, Woodley Park Research


Thursday, August 13: American unemployment benefit claims for early August will be reported. The rate is expected to decline.

Friday, August 14: Statistics Canada will issue manufacturing sales for June. Sales in May were at the lowest level in over a decade.

Monday, August 17: Retail Internet sales for second quarter 2009 will be reported by the U.S. Census Bureau. Little if any growth is expected, following a slight uptick in the first quarter.

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