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File photo of an oil sands worker near Fort McMurray, Alta. (TODD KOROL/REUTERS)
File photo of an oil sands worker near Fort McMurray, Alta. (TODD KOROL/REUTERS)

Business Briefing

Unemployment: Why the ‘worst is yet to come’ amid oil shock Add to ...

These are stories Report on Business is following Friday, March 13, 2015.

Follow Michael Babad and The Globe's Business Briefing on Twitter.

Jobless rates spike
The collapse in crude prices is driving up unemployment in Canada’s oil-sensitive regions.

In Alberta, The Globe and Mail’s Tavia Grant reports, the jobless rate spiked in February to 5.3 per cent from January’s 4.5 per cent as 14,000 jobs were lost in the province that is home to the country’s oil patch.

In Newfoundland and Labrador, unemployment surged by 1.2 percentage points to 12.6 per cent, with the loss of 3,000 jobs.

And in Saskatchewan, which is being hit to a lesser extent, the jobless rate now stands at 5 per cent, up from 4.5 per cent.

“The strain of falling energy prices is certainly evident in Western Canada with all of the provinces recording job losses on the month with Alberta bearing the brunt of the decline,” said Stéfane Marion of National Bank of Canada.

The slump in oil price is now showing up amid the cutbacks in the oil patch, reversing the fortunes of Alberta, in particular, which had been the country’s job-creation engine.

“The oil shock is undeniably deteriorating labour market conditions in oil-producing provinces,” said assistant chief economist Sébastien Lavoie of Laurentian Bank Securities.

“Altogether, 18,000 jobs were lost in Alberta, Saskatchewan and N&L,” he added, noting, too, that “when we look at the behaviour of Alberta’s unemployment rate following large declines in [West Texas Intermediate] oil prices, we are of the view that the unemployment rate figure is poised to increase even further this spring.”

Mr. Lavoie pointed out that Saskatchewan’s unemployment rate has now climbed to 5 per cent from just 3.4 per cent in November, which translates to the second-fastest three-month cumulative rise in history.

British Columbia, which has “strong economic ties” to Alberta, also saw an unfortunate rise in its jobless rate, to 6 per cent from 5.6 per cent.

Nova Scotia’s resources sector also took a hit, which “would reflect layoffs of commuting workers from other provinces,” said senior economist Robert Kavcic of BMO Nesbitt Burns.

Across the country, a net 1,000 jobs were lost last month, Statistics Canada said, while the unemployment rate climbed to 6.8 per cent from 6.6 per cent a month earlier.

You’ve got to look deeper, too: Self-employment rose by 4,000 while some 5,000 paid positions were lost.

Not only that, but the jobs market was buoyed by the public sector, while private employers slashed positions.

The resources sector lost a total 17,000 positions, and it could well get worse.

Half the February job cuts in Alberta came in the resources sector, which has now suffered a “steep” 7.5-per-cent drop from a year ago, noted senior economist Robert Kavcic of BMO Nesbitt Burns.

“Non-resource employment was still up 2.4 per cent year over year, but February’s result hints that job losses won’t be contained to just energy workers as much of Alberta’s economy spins off from activity in the oil patch.”

Analysts have been cutting their outlook for Alberta’s economy, which is already showing up in a much weaker housing market.

Just yesterday, in the most recent forecast, Royal Bank of Canada warned that Alberta’s economy will eke out growth of just 0.3 per cent this year.

And a recent World Bank paper also held an ominous warning.

“If oil prices are sustained around $50-$70 per barrel – well below the break-even cost for many projects – investment in the oil and gas sector could swiftly drop by some 30 per cent, thus lowering overall business investment by some 10 per cent,” it said.

“Although consumers would benefit from lower pump prices, the terms of trade deterioration would trickle through to lower incomes, which would worsen household balance sheets and may slow the housing market.”

Indeed, the Canadian Real Estate Association warned today that the rout is playing out in the housing market.

“The further decline in oil prices since CREA's last forecast has shaken consumer confidence in the Prairies, pushing potential homebuyers to the sidelines and prompting more homeowners to put their home on the market,” it said.

“This has led to a rapid shift in market balance in Alberta, and to a lesser extent, Saskatchewan. Annual sales in these provinces are expected to come in well below elevated levels posted last year, with small declines in average residential prices in 2015.”

The realtors group now projects Alberta will see home sales plunge by more than 19 per cent, and in Saskatchewan by 11 per cent.

Today’s report came amid yet another forecast from the International Energy Agency that warned of further threats to oil prices as American production continues apace, with little room for where to store it.

Bank of Canada Governor Stephen Poloz has said that the hit from the market may have been “front-loaded,” which in turn has led some observers to question whether he will cut rates again.

“Unlike Poloz, we think that the worst of the effects from crude’s collapse will show up in Q2 and Q3 data, with the peak in the national unemployment rate arriving toward the middle of the year,” CIBC World Markets economist Nick Exarhos said in a report titled “February Canadian employment little changed, but worst is yet to come.”

Some economists, too, had wondered whether Target Corp.’s retreat from Canada would show up in the numbers.

That didn’t happen. But it probably will.

“With the chain liquidating, the stores are now actually quite busy, and still well-staffed,” said chief economist Douglas Porter of BMO Nesbitt Burns.

“In the data, retail jobs were actually up last month,” he added.

“When the store fully closes its doors in the spring, then we will see the effect. Even then, it may be blunted if some of the workers are picked up by others – though the size and scope of the layoff (over 17,000) will be tough to digest quickly.”

Loonie slides
The Canadian dollar is hovering around the 78-cent mark today, having actually dipped below that level to mark a fresh low.

The loonie touched a low of 77.99 cents U.S., having been as high as 78.83 cents.

That, said George Davis of RBC Dominion Securities, is because of renewed strength in the U.S. dollar, after a day of softness, and the latest tumble in oil prices.

Observers expect the loonie to end up around the 75-cent mark later this year.

Bank of Russia cuts rates
Russia’s central bank slashed its benchmark rate today, signalling that it probably won’t be the last such move.

The Bank of Russia cut the rate to 14 per cent from 15 per cent, saying inflation appears to be cooling and warning of the risk of “a more significant cooling of the economy.”

And “as inflation risks abate, the Bank of Russia will be ready to continue cutting the key rate,” it added.

Annual inflation now stands at 16.7 per cent, the central bank said, blaming the slump in the ruble and trade sanctions.

“Their impact is short-term and will be exhausted before the end of 2015,” it said.

Home sales edge up
Alberta home prices continued their downward slide in February as steeper job losses in the oil sector kept buyers out of the market, The Globe and Mail's Tamsin McMahon reports.

In Calgary home prices fell 1.6 per cent in February compared to a month earlier and sales activity remained 35 per cent below last year's levels as the city's housing market grappled with the fallout from lower oil prices.

The Canadian Real Estate Association predicted national home sales will fall 1.1 per cent this year, to 475,700, driven by a 20-per-cent drop in sales in Alberta and an 11-per-cent decline in Saskatchewan.

Prices will likely fall 3.4 per cent in Alberta, driven by fewer sales of luxury properties, the association said, although stronger price growth in B.C. and Ontario should more than make up for the drop in oil-producing provinces. Overall, the association predicted that prices will rise 2 per cent to $416,200 this year, driven by a 3.4 per cent jump in B.C. and 2.5 per cent price growth in Ontario.

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