The Canadian labour market is poised to see a significant slowdown in hiring and the possibility of a decline in employment as the second wave of COVID-19 weighs on the economic recovery.

By Matt Lundy* - Economics Reporter - December, 2020 

Statistics Canada will publish the October edition of its Labour Force Survey (LFS) on Friday, with results reflecting work conditions between Oct. 11 and 17. The median estimate from economists is for a net gain of 100,000 positions last month, although a handful of forecasters are expecting a decline. Either way, that would be the weakest month of job creation since the recovery began in May.

Friday’s report is notable because it will be the first to show how a second wave of virus cases – and new restrictions aimed at containing it – has affected the labour market. During Statscan’s survey period, Ontario and Quebec had shuttered indoor dining, gyms and other close-contact services in some urban centres, including Toronto and Montreal.

Three of the more pessimistic takes for October come from Quebec-based Laurentian Bank Securities, Desjardins Financial Group and National Bank Financial.

“I think it’s a bit more gloomy in Quebec,” said Dominique Lapointe, senior economist at Laurentian, which expects a net loss of 100,000 positions in October. “Maybe we’re putting a bit more emphasis here on the negative. … But when I do the math, I get a slightly negative number."

Even before the second-wave impact, a moderation in job growth was widely expected after outsized gains in the summer. To date, Canada has recouped about three-quarters of three million jobs that were lost in March and April, with many employees returning from temporary layoffs. Employment rose by roughly 378,000 in September, a result that was much higher than Canadian banks had forecast.

That said, the drivers of September’s increase are unlikely to be repeated to the same degree. For one, the return of school had a tangible impact, with mothers rebounding to prepandemic levels of employment. Also, young Canadians (ages of 15 to 24) saw employment jump by around 127,000 as they recovered jobs in hard-hit service industries.

“That effect also probably won’t repeat,” said Derek Holt, head of capital markets economics at Bank of Nova Scotia, in a client note.

Furthermore, there’s been a full employment rebound in several industries, such as education and finance, suggesting that there’s little extra room for hiring.

“You don’t need a lot of layoffs to get to a national decline [in employment] if there’s not a lot of upside left in other industries,” Mr. Lapointe of Laurentian said.

Then there’s new lockdown measures. During Statscan’s survey period in mid-October, Ontario and Quebec’s partial lockdowns were somewhat fresh. It’s uncertain whether employers were more inclined to retain employees and cut their hours than put them on temporary layoffs as they awaited next steps from policy makers.

At the very least, Mr. Lapointe expects the number of hours worked in October’s LFS to decline by “much more” than overall employment.

There are, however, some more upbeat takes for Friday. Bank of Montreal forecasts a gain of 100,000 positions. Despite tighter restrictions, “we’re still looking for employment to see a decent gain amid momentum in other sectors,” rates strategist Benjamin Reitzes said in a client note. “Housing remains red hot, while retail continues to benefit from spending diverted from unavailable services."

If there’s an October expansion, then November could be primed for a setback. Quebec’s partial lockdown will last until at least Nov. 23, while Manitoba recently imposed tighter restrictions after a surge of cases. On the other hand, Ontario’s government on Tuesday outlined its criteria for reopening, with restrictions lifting soon in virus hot spots.

“The October [labour] reading is likely just the beginning of what will be a rocky period for the Canadian economy,” CIBC Capital Markets said in a report, calling for no change in employment last month.

However, if targeted restrictions are successful, “there could be scope for modest employment gains early in 2021, offsetting some of these expected losses.”

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About the Author

*Matt Lundy is an economics reporter for The Globe and Mail's Report on Business section.

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