Toronto and Ottawa — The tide of job losses washing across North America is showing signs of ebbing, feeding hope that the worst of the recession is over.
On the surface, the employment market still appears bleak. Reports yesterday showed the Canadian unemployment rate reached an 11-year high of 8.4 per cent, in large part because of layoffs in the auto sector, while the U.S. jobless rate soared to the worst level in 26 years at 9.4 per cent.
Yet investors and economists are looking past those grim tallies and focusing on subtle details that suggest the nadir of the economic crisis has passed. The key signals include a dramatic and unexpected slowdown in the pace of U.S. job losses, strength in the service side of the Canadian job market and an increase in the number of people looking for work that reveals growing confidence that sending out résumés isn't a lost cause.
“We are in the process of turning the corner,” said Aron Gampel, deputy chief economist at Bank of Nova Scotia. “Bonds, stocks – every market is telling you we are at this transition from recession to recovery.”
At 345,000 lost jobs, the drop in U.S. employment was the smallest in eight months.
In Canada, where 42,000 jobs disappeared, most provinces actually showed gains. Only manufacturing-dependant Ontario registered a significant decline, losing almost 60,000 positions; the provincial unemployment rate is now 9.4 per cent, a 15-year high.
The job figures come on the heels of recent reports that showed a stronger pulse for U.S. consumer confidence, manufacturing and house sales.
Yesterday, optimistic investors moved money out of the safe haven of bonds and Canadian stocks rose yet again.
The question now is whether these indicators presage a robust rebound in the North American economy, or whether they just mark the end of a period of intense upheaval that will be followed by a slow, choppy and uncertain recovery.
Conventional wisdom is that the economy is usually well on its way to renewed health before the improvement shows up in job numbers.
Even so, Robert Hall, head of the National Bureau of Economic Research committee that declares the beginnings and ends of U.S. recessions, isn't ready to boast victory over the downturn. Yesterday he said it's still “way too early” to make that call.
If it's too soon to proclaim the U.S. recession over, it's likely premature to herald an end to Canada's downturn, given that this country usually lags its southern neighbour on the way down and on the way up.
While Mr. Gampel is more optimistic, expecting the Canadian economy to expand in the second half of the year, he acknowledged that “the trajectory of growth will be very subpar relative to past cycles.”
That's because there are still stiff economic headwinds in both countries in addition to record high jobless levels.
Because of trends in the bond market, mortgage rates on both sides of the border are moving higher. That threatens any rebound in housing.
Canada's export sector faces the additional problem of a soaring dollar, which makes exports less profitable and life miserable for manufacturers. The currency has jumped almost 10 U.S. cents in the past two months to close at 90 U.S. cents, prompting the Bank of Canada to voice concern this week.
The biggest hurdle is still consumer spending, with citizens cutting back to cope with their losses in the job, housing and stock markets. That's unlikely to change quickly, as many have a long way to go to reduce debt and rebuild savings.
“There are signs that consumer sentiment is improving but rising unemployment and tight credit conditions are hardly the conditions for a spending spree,” said Gavan Nolan, a credit analyst with Markit Group in London.
In other words, the key to the pace of recovery will be what the next few months holds for people like Gia Liu, who suddenly finds herself one of those looking for work. Yesterday was the last day on the job for the Toronto graphic designer. Her employer, which publishes a newspaper for the Chinese community, let 10 staff go.
She has few illusions that finding a new position will be easy, with 362,500 people in Canada having lost their jobs since October. In the meantime, she's paring back spending as she prepares to get by on employment insurance until she lands work.
“It maybe will be difficult because there are many people losing jobs these days,” Ms. Liu said. “There's no money coming in so I need to cut expenses.”
© The Globe and Mail
