H.J. Heinz Co. celebrated its 100th year in Leamington, Ont., in September 2009. Despite the recession, company officials gushed about the future of the factory, where up to 300 bottles of ketchup flew off the assembly line every minute. The production line would be there for “a long time,” they said. And why not? It wasn’t like North Americans were about to stop eating burgers and fries.
Four years later, Pittsburgh-based Heinz has suddenly soured on the tomato capital of Canada. It will close the Leamington plant in June, eliminating 740 jobs. The company’s new owners, which include Warren Buffett’s Berkshire Hathaway, say the facility had become unprofitable despite the recovering U.S. economy—the latest example of a big corporation pursuing a strategy of aggressive cost-cutting, even as sales appear set to revive.
What happened in Leamington was not an isolated incident. In recent months, scores of big employers across Canada have made similarly distressing announcements: Sears is laying off nearly 800 workers; Hallmark plans to move 300 jobs to the U.S.; Kellogg’s is closing a cereal plant in London and laying off 500; U.S. discount retailer Big Lots is shuttering 78 Canadian stores and slashing 1,600 jobs; Potash Corp. is culling 1,045 workers, including 440 in Saskatchewan and 130 in New Brunswick; and natural gas producer Encana is dumping 800 employees. Even the Bank of Montreal quietly eliminated nearly 1,000 positions in the fourth quarter—despite posting a record full-year profit of $4.2 billion. The list goes on. The job losses aren’t relegated to any one sector; they’re all over the map—manufacturing, resources, retail, finance—making it difficult to point to a sector that can be counted on for robust growth this year.
Experts say it’s more than just a coincidence. “The Canadian economy is far weaker than anyone expected it to be,” says Mike Moffatt, an assistant professor at the University of Western Ontario’s Ivey School of Business. And while that’s never welcome news for the job market, the slump couldn’t come at a worse time for Canadian families who are up to their eyeballs in debt. Statistics Canada recently said households owe a record $1.64 for every dollar they earn.
Escaping the crushing weight of all those mortgages and lines of credit requires job creation and income growth, which is looking like an increasingly tall order. The 179,100 jobs the Canadian economy created in the 12-month period leading up to November was, except for the Great Recession, the worst showing of any comparable period since 2001. Put another way, in 2012, an average of 25,400 jobs were added every month. In 2013, monthly job gains were barely half that amount. And many of those new positions are increasingly temporary or part-time. Of the 21,600 new jobs in November, fewer than one in 10 were in full-time positions—hardly ideal for supporting a family or paying off a big mortgage.
In fact, economists predict Canada’s unemployment rate will surpass America’s in 2014 for the first time in five years. And, while an apples-to-apples comparison of the two countries’ unemployment figures is fraught—for technical reasons having to do with how they’re calculated—psychologically speaking, the event will come as a shock to Canadians lulled into believing we are somehow economically superior; that with all the talk of recovery, our jobs would be safer.
The net effect is a recovery that feels more like the recession that preceded it. Politicians boast about Canada’s exceptionalism, but it’s rapidly becoming apparent that our economy is a lot less dynamic than we’d been led to believe. “We were running up this huge housing and construction boom that, economically, probably didn’t make much sense, and covered up a whole lot of sins,” Moffatt says. “I think we’re finally starting to recognize that, five years after the financial crisis, there are still a lot of people looking for work.”
Canada is facing a jobs crisis with its stagnating labour market and, unless things pick up soon, the financial crunch many families are already feeling is going to get worse.
The narrative about Canada’s economic performance during the 2009 recession is well-known: Buoyed by “prudent” banks, federal officials deftly pulled on their policy levers to make it easier for Canadians to borrow money to buy cars, houses and gadgets. All that spending propped up the economy and bolstered the job market while other countries grappled with massive unemployment. “Canada now has the best job-creation record in the G7—one million net new jobs since the depths of the recession,” Prime Minister Stephen Harper reminded Canadians in a recent speech.
But such rosy pronouncements are at odds with the bleak performance of the Canadian economy in the last few months. It began slowing rapidly in 2012, and very nearly ground to a halt last year with GDP growth of just over 1.6 per cent. The reason? Consumers are finally tapped out. “Domestically, the growth drivers aren’t really there anymore,” says Benjamin Reitzes, a senior economist at BMO Capital Markets. “We’re still going to see consumption growth, which is the largest part of the economy, but it’s not going to be the leader it once was.”
One of the first sectors to get hit will be Canada’s overheated housing market, which almost single-handedly pulled the country through the recession. While many (including this magazine) have predicted a crash, even a marked slowdown threatens to kneecap a construction sector that grew right alongside the forest of condo towers that now dominate the skylines of cities such as Toronto and Vancouver. Taken together, construction and real estate account for more than nine per cent of all Canadian jobs, a level not seen since at least 1976, the furthest back Statistics Canada data go. What’s more, the construction and real estate sectors make up close to 20 per cent of Canada’s economy, meaning a slowdown will have a significant knock-on effect through other industries. As it stands, economists expect Canada’s economy to tick up by between 2.3 and 2.7 per cent in 2014 and, even then, it’s worth noting that most economists, as well as the Bank of Canada, have consistently been too optimistic in their forecasts. Ahead of 2013, economists at one time predicted GDP growth of three per cent for that year, only to be later forced to revise their estimates downward to closer to 1.7 per cent.
Another sector that’s particularly exposed to a real estate slowdown is finance. Canadian banks have come to rely heavily on consumer and mortgage lending for their earnings. When the Bank of Montreal shed roughly two per cent of its workforce last quarter, most of the cuts came from the bank’s Canadian personal and commercial banking operation. Analysts predict further cuts are inevitable if the pace of lending continues to slow.
At the same time, governments across the country are in the process of slashing public sector positions in a bid to erase the deficits they rang up during the recession. Various levels of government slashed a record 5.3 per cent of public service positions in the 12 months leading up to December, equivalent to 51,600 jobs, according to BMO’s Reitzes. The figure doesn’t include Canada Post’s plan to phase out home delivery, which will eliminate the need for 6,000 to 8,000 positions.
Is it any wonder critics are poking holes in the Harper government’s claims about all the jobs created since the recession? Jim Stanford, an economist with Unifor, the new union created by the merger of the Canadian Auto Workers and the Communications, Energy and Paperworkers, recently wrote in a report that the addition of more than one million jobs since 2009 is far less impressive, when one considers that Canada’s working-age population has grown by 350,000 people per year during that time—among the fastest rates in the developed world. In fact, the gradual decline in Canada’s unemployment rate has more to do with declining labour-market participation: Frustrated job-seekers who give up on their searches altogether are not counted in the official statistics. A better measure of job-market performance, Stanford argued, is the overall employment rate, which looks at how many working-age Canadians actually have jobs. That figure currently sits at 61.8 per cent, barely improved from the pit of the recession and below the level it was a decade ago. Without vigorous job growth that exceeds increases in the population, things aren’t going to get any better. “No wonder it still feels like a recession in the labour market,” Stanford notes. “By this key measure, we are hardly any better off than during the darkest days of the financial crisis.”
The best-case scenario for Canada’s slumping economy, it seems, is for Uncle Sam to come to the rescue just as Canadian consumers cut up their credit cards. Economists at the Royal Bank of Canada predict a recovering U.S. economy could boost Canadian GDP growth to 2.6 per cent this year by sparking demand for everything from B.C. lumber to Ontario-made automobiles.
But it’s not clear that will translate into big employment gains. One of the more curious features of the spate of recent Canadian factory closures is that, while production is often being moved to lower-cost regions in the U.S. and overseas, the jobs are seldom going along with it. In early December, Switzerland’s Novartis said it was closing a Ciba Vision plant in Mississauga, Ont., that makes contact-lens solution and moving production to a plant in Fort Worth. “It’s important to note that 300 jobs are not moving to Texas,” Mark Smithyes, head of government affairs and market access for Alcon Canada, a division of Novartis, told the Canadian Press. “The production is being absorbed into our Fort Worth plant, but we’re not looking at hiring additional workers.” Similarly, Heinz announced the closure of two other North American plants in November in addition to Leamington, affecting a total of 1,350 positions. But there are only plans to hire 470 employees at the five factories that will pick up the extra work.
Call it the new reality of today’s marketplace: In the face of modest growth, the path to better profits comes mainly from figuring out how to make the same number of widgets with fewer workers. “The cruel joke, when it comes to manufacturing in Ontario, is that productivity is up about 30 to 40 per cent over the past decade,” Ivey’s Moffatt says. “But the problem is that we manufacture about the same amount as we did 10 years ago, so that essentially means a 30 to 40 per cent reduction in the size of your labour force.” It’s not a phenomenon affecting only manufacturing, either. Advances in robotics and other technology are allowing HR departments in both blue- and white-collar industries to streamline their workforces, with at least one recent Oxford University study suggesting as many as half of all occupations could be subjected to some degree of automation over the next two decades.
Hastening the trend are myriad taxpayer-funded deals being made available to companies seeking to modernize their facilities with the latest labour-saving innovations. Kellogg’s Canada, for example, chose to close its 90-year-old cereal plant in London, Ont., and lay off 500 workers, just five years after the Ontario government promised to give the company $9.7 million to build another plant 3½ hours east in Belleville. It employs 150.
Ian Lee, an assistant professor at Carleton University’s Sprott School of Business, calls the continued decline of Canadian manufacturing “deeply troubling.” He blames a lack of wage competitiveness, high taxes and, in Ontario, efforts to promote costly green-energy sources that have helped set the stage for a crippling 33 per cent rise in energy prices in the province over the next three years.
Of course, things could always be worse. James Marple, a senior economist at Toronto-Dominion Bank, says Canadians have actually had it pretty good since the global economy screeched to a halt in 2009, and that we shouldn’t feel jealous of our American counterparts, now that their economy is finally on the mend. “Really, they’re just finally catching up after such a poor performance for so long,” he says, adding that “we typically have a Canadian economy that does better when America does better.”
Canada also happens to be blessed with a huge store of natural resources that most countries can only yearn for. In oil-rich Alberta, that’s translated into an unemployment rate of 4.7 per cent. In Saskatchewan, the jobless rate is even lower, at 4.1 per cent.
For all that, though, the resource sector has also shown signs of weakness, as demonstrated by the recent layoffs at Potash Corp. and Encana. Potash prices have plunged in the wake of the breakup of the world’s largest potash-export cartel in the former Soviet Union. Encana, meanwhile, has suffered amid a glut of natural gas that’s driven down prices. Even Alberta’s oil patch, which the Harper government is counting on to make Canada an “energy superpower,” has suffered from an inability to get its crude to market, even as new technologies such as fracking unlock reserves elsewhere. In fact, the International Energy Agency is predicting that the U.S., once the world’s biggest importer of oil, could become the world’s biggest exporter of crude by 2015. With new supplies coming online amid a slowdown in emerging-market economies such as China and India, some economists believe this cycle of sky-high commodity prices could be coming to an end. That doesn’t mean oil prices are about to collapse back to $20 a barrel, as they did in the 1990s. But higher production costs in the energy sector mean companies will have to react fast to any further price declines, and the easiest way to do that is to slash jobs.
It’s happened before. The 1980s oil glut sent the price of crude tumbling, taking jobs in Western Canada with it. Ironically, it was also a time when money poured into southern Ontario’s manufacturing sector to take advantage of the cheap dollar and skilled workforce, creating a sense of giddiness in the province. Now, many of those factories are shuttered or in the process of being wound down, leaving workers to feel like the plump, red tomatoes that will soon stop rolling through the Heinz factory in Leamington—squeezed—while Canadians elsewhere are left to wonder if they could be next.
Pink-slip parade (Company, location — jobs cut)
Hallmark Cards, Toronto — 300
Bank of Montreal, various — 1,000
Sun Media, various — 200
BlackBerry, various — 4,500
Pixar Canada, Vancouver — 100
H.J. Heinz Co., Leamington, Ont., various — 740
Novartis, Mississauga, Ont. — 300
Kellogg Co., London, Ont. — 500
Potash Corp., various — 1,045
Encana, various — 800
Sears, various — 800
Big Lots/Liquidation World, various — 1,600
Loblaw Cos., various — 275
Canada Post, various — 6,000+
Rogers Media, various — 94