Alberta oil job losses will benefit Ontario, Manitoba, Quebec

OTTAWA — With the bottom falling out of oil prices — and shaving Canada’s  growth forecasts for this year and beyond — the markets are now waiting for the other economic shoe to drop: employment.

But while activity in the energy sector will be curtailed, and jobs eliminated, non-oil-dependent regions of Canada, such as Ontario, are expected to benefit from cheaper production costs and begin hiring more.

The initial impact of weaker crude prices — now at more than a 5 1/2-year low — should begin showing up in the December employment report, to be released on Friday by Statistics Canada.

“Eventually, as we move through 2015 — assuming the oil price stays low — it will start contributing to some weakness showing up in Alberta and Saskatchewan. But more on the construction side, rather than production,” said Paul Ferley, assistant chief economist at RBC Economics Research.

“This should also result in a pickup in manufacturing in Ontario, as well as provide a lift in Manitoba and Quebec.”

Finance Minister Joe Oliver, in his Nov. 12 economic and fiscal update, suggested the plunge in oil prices could cut government revenues by as much as $2.5 billion annually between 2015 and 2019. That calculation was based on crude trading at around US$70 a barrel, although it has since fallen below US$53.

Bank of Canada governor Stephen Poloz, meanwhile, said lower oil prices could slash 0.3% off GDP in 2015.

Policymakers are expected to update their estimate in the central bank’s next quarterly Monetary Policy Report on Jan. 21.

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But Mr. Ferley said RBC is “not expecting a big hit to GDP, so on net, nationally, we’re not expecting a big hit on the overall [employment] numbers.”

Most economists expect next week’s jobs data to show a gain of about 10,000 positions for December, following a loss of 10,700 workers the previous month. However, the unemployment rate should remain at 6.6%.

The federal data agency’s monthly household employment surveys are notoriously volatile, and include a large margin for error. As a result, the employment picture trends to flip from positive to negative on a regular basis.

“After a two-month outburst of 117,000 jobs, the soft underbelly of the labour market showed itself again in November, with employment retracing a portion of the [previous] big gains,” said Benjamin Reitzes, senior economist at BMO Capital Markets.

“Given the huge decline in oil prices, markets will be watching the energy sector readings closely for signs of cutbacks,” Mr. Reitzes noted. “Commodity price weakness will likely be a key in 2015, with the Alberta economy, which accounted for about one-third of national job gains in 2014, likely to slow materially.”

Alberta’s unemployment rate has been idling around 4.5% in recent months, but should start heading higher in December, according to analysts. The same upward pressure is expected in Saskatchewan, after a 3.4% reading in November.

“There are positive aspects in terms of the drop in oil prices,” Mr. Ferley said.

“There’s lower energy costs, which help the non-energy businesses. It helps the consumer. And the lower oil prices is a positive shock for the U.S. economy, so exporters are looking at stronger growth south of the border, with are competitiveness enhances further with the weakness in the Canadian dollar.”

Financial Post
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