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A sobering take on the financial sector Add to ...

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In light of the extreme weakness in commodity prices, Canadians view the significant job losses in resource sectors with empathy, but not surprise. Job losses in finance, however, would be another matter entirely, but according to one major global investment bank, employment in finance-related industries is set to fall significantly.

The trendline on the chart indicates that employment in finance is higher than the longer-term trend since 1987 would predict. The trend suggests that finance should be about 3.5 per cent of the total instead of 3.7 per cent.

A difference of 0.2 of a percentage point doesn’t sound that significant, but in this case a return to trend would represent 40,000 job cuts in financial services – from 670,000 now to 630,000. (Statscan estimates the labour force at 18 million).

Ugly as they seem, these numbers are not a worst-case scenario. They assume that the uptrend in financial services as a percentage of the total labour force continues higher as it has for the past 30 years. This is not a foregone conclusion. The potential for the famously indebted Canadian households to begin a deleveraging process – where credit growth stalls or reverses as Canadians pay down debt – is rising, and this would limit business activity for financial services.

Importantly, the domestic financial services industry remains the envy of much of the world. The major domestic banks and insurers play a central and highly profitable role in the economy and it’s possible that their growth could mitigate the employment losses suggested by our charts. Mr. Doyle’s analysis, however, is definitely worth consideration in light of the considerable hurdles the Canadian economy faces in the months ahead.

Follow Scott Barlow on Twitter @SBarlow_ROB.

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