Market News

 July 01, 2011
Canadian businesses feeling upbeat

 Canada is outpacing many other countries on the hiring front, as companies grow optimistic about their sales prospects and worry they won't have enough people to keep up with demand.

Against a backdrop of uncertainty ranging from the sluggish U.S. rebound to Europe's debt troubles and fears that China will move too aggressively against inflation, the domestic economy is chugging along, seemingly outperforming expectations.

Even in a second quarter where growth was held back by the Japanese earthquake's impact on auto production, and as high energy prices squeeze consumers already worried about their debts, several indicators show the economy hasn't lost as much steam as feared.

That suggests the labour market, which has already recouped all of the jobs lost during the recession, according to Statistics Canada, will continue to create positions even as some companies remain cautious and public-sector hiring grinds to a halt as governments hold back.

As confidence plunged in global financial markets Monday, the Bank of Canada's quarterly survey of Canadian businesses found most were optimistic about their sales prospects over the next year, and are enjoying easier credit conditions. That explains why the survey also showed the most robust hiring intentions on record, with the most aggressive plans coming from companies in the services sector, such as wireless provider Telus Corp. (T-T54.18-0.40-0.73%)

"When the growth is there we hire, and when it isn't, we don't," said Jim Johannsson, a spokesman for Telus, which is on a hiring blitz that by the end of the year will see it create 200 permanent jobs in Edmonton and 250 in Calgary to keep up with growth in the optic TV market.

The Bank of Canada survey shows that many firms like Telus and IBM Canada -- which is hiring consultants, salespeople and software engineers across the country -- are taking a leap of faith and planning to boost hiring as well as investment, despite signs of trouble from abroad.

Hiring intentions are becoming "widespread across all regions and sectors," the survey found, with 57 per cent of respondents saying they plan to staff up over the next 12 months compared with just 4 per cent that expect to cut their work force. That brought the "balance of opinion" on hiring to its highest level since the survey began.

Companies also indicated they will push forward with plans to buy productivity-enhancing machinery and equipment, an encouraging sign since business investment is now a crucial source of economic growth with governments and consumers spending less.

Firms in Central and Eastern Canada are less bullish about future sales than their counterparts in the West, "given an economic backdrop characterized by continuing softness in U.S. demand, strong competition and a high Canadian dollar." But over all, the survey found, more companies would face "some" difficulty meeting a surprise jump in demand.

And a quarter of those surveyed said they were having more trouble finding workers, compared with 14 per cent in the last poll, although the central bank cautioned that the share of firms facing labour shortages is well below historical averages.

A separate report Monday, from Canada Mortgage and Housing Corp., showed that in June work began on far more new homes than economists had estimated, fresh evidence that the real-estate market is still strong.

Combined with a hotter-than-expected inflation rate and a report that showed employers in June hired almost twice as many workers as anticipated, the positive data belie the notion that an exporting economy like Canada's can only thrive when its trading partners are in better shape.

A crucial question, of course, is whether the businesses needed to carry the recovery forward will keep looking on the bright side if conditions in the United States or Europe worsen.

The Bank of Canada survey, for instance, was taken from May 24 to June 16, before credit-rating agencies threw a huge wrench into the European debt drama, and before last Friday's U.S. jobs report showed the labour picture in Canada's No. 1 market may be worse than anybody feared.

"From a domestic standpoint, we're doing the best in four years," Stéfane Marion, chief economist and strategist at National Bank Financial, said in an interview. "Will firms follow through on those hiring intentions? Well, they won't follow through if they think the global economy is caving in. But you have to put a probability on that."

For Mr. Marion, that probability is not very high. He acknowledges that some of the optimism in the survey could erode, depending on how precarious are the situations in the euro zone and in Washington, where efforts to address the anemic jobs picture are being complicated by acrimonious debt-ceiling negotiations.

At the same time, he noted, Europe's debt woes have had no tangible impact on lending in Canada. In any case, the rising capacity pressures suggest the economy is not only in a healthier spot than many of Canada's trading partners, but that Mark Carney, the Bank of Canada Governor, will need to raise borrowing costs sooner than later to keep inflation in check.

Even some of the manufacturers in Central Canada who are struggling with a high dollar are ready to start hiring again. For many, that's because after making do with fewer workers for as long as possible in an effort to keep costs down, they're now worried about not being able to fill orders as they increase.