Second wave of layoffs looms as COVID cases climb, straining hard-hit industries

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It took only hours for September’s sparkling job numbers to become yesterday’s news.

Statistics Canada reported?Friday morning that employment had jumped by a greater-than-expected 378,000 positions last month. The jobless rate had also fallen to nine per cent, high but far lower than May’s peak of 13.7 per cent.

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Then Ontario, stung by a rising number of COVID-19 cases, announced in the afternoon that it would follow in Quebec’s footsteps by closing gyms, movie theatres and casinos in an attempt to turn back the virus. Indoor dining at restaurants and bars would be banned, Ontario said, with the measures going into effect on Saturday in Ottawa, Peel Region and Toronto.

The future of the economy had become pegged once again to the future spread of COVID-19. It wasn’t entirely unexpected either, as days earlier Canada’s chief public health officer, Dr. Theresa Tam, said daily reported COVID-19 cases continued to “increase steeply,” with numbers for the past seven days up approximately 40 per cent compared to the previous week.

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“Not much can be extrapolated for the future trajectory of employment from the release,” Canadian Imperial Bank of Commerce economist Royce Mendes wrote of StatsCan’s job numbers. “The country is now faced with new virus cases clearly trending in the wrong direction, threatening to upend the labour market recovery and any momentum that was gained in September.”

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Friday’s news indeed served to hammer home the point that a second wave of COVID-19 has arrived in Canada, or at the very least in its most populous provinces.

What’s worse, though, is that case numbers are rising as Canada’s economic recovery has lost some of its velocity, and it could lose more still if an increasing number of coronavirus cases keeps wary customers at home and forces the need for more government-imposed restrictions on people and businesses. Further compounding the problem is that winter is drawing near, causing concern for businesses that may have been finding additional revenue by operating outdoors.

Put it all together and the second wave of the virus could mean a second wave of layoffs for some firms. And although these job losses may not be as breathtaking in scale as in the early days of the pandemic, it would start by hitting industries that have already been hit plenty hard, straining the already-strained.

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“Despite the strong September jobs report, the path of employment in the coming months is still very uncertain and we expect October to be a much-weaker month of job growth, potentially even showing job losses as a number of activities have been restricted again in Quebec,” Citigroup Inc. economist Veronica Clark said in a note to clients.

Some businesses have been already hit by layoffs, or anticipate having to cut jobs in the future. Air-traffic controller Nav Canada in September announced it has cut more than 720 jobs, or 14 per cent of its workforce. And travel company Transat A.T. Inc. last month said it expected it would need to lay off at least 2,000 employees, or 40 per cent of its workers.

More job cuts could follow. Polling of business leaders done in September for the Chartered Professional Accountants of Canada discovered 31 per cent were predicting a decrease in the number of their employees in the coming year, compared to 28 per cent who were projecting an increase and 39 per cent who anticipated no change.

“A substantial increase in COVID-19 caseloads could see provincial governments re-impose social distancing guidelines that could weaken the pace of employment gains or worse, lead to another decline,” Toronto-Dominion Bank economist Sri Thanabalasingam wrote on Sept. 23.

More recently, Restaurants Canada said a?survey had found around half of table-service establishments expect to let employees go over the next three to four months. Shortly after Ontario’s new restrictions were announced, the industry group declared the ban on indoor dining in the province’s hot spots “will result in tens of thousands of lost jobs that will require government help to recover.”

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Those job losses would damage an engine of Canada’s recent job growth, as the accommodation and food services sector added 72,000 positions in September, StatsCan said. Another vulnerable sector, information, culture and recreation, added 56,000 jobs. There was also an increase of 68,000 educational jobs as the school year began, which is a pop that may not be repeated in October.

September’s growth put Canada’s workforce within 720,000 jobs of where it was in pre-pandemic February. However, in the months to come, the Bank of Canada and other forecasters anticipate that additional economic gains will be harder fought, coming at a far less rapid rate than the feel-good summer days of declining COVID-19 cases and soaring jobs numbers.

“It will be a long, slow climb to get everybody back to pre-pandemic working hours, particularly in the sectors that are most affected,” Bank of Canada Governor Tiff Macklem warned in a speech on Oct. 8.

It will be a long, slow climb to get everybody back to pre-pandemic working hours, particularly in the sectors that are most affected

Bank of Canada Governor Tiff Macklem

For some, the climb could be slower and longer, as the faster-than-expected rebound in overall employment has masked an uneven recovery overall.

Statistics Canada said three-quarters of the gap in employment from pre-February levels is concentrated in four industries: accommodation and restaurants; retail; construction; and transportation and warehousing. Prospects for those sectors are up in the air, suggesting the pace of employment could slow, and may even reverse course, depending on the severity of the second wave.

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“The hardest-hit industries, which are large-scale employers in the Canadian economy, are going to have a very difficult time recovering in an environment where the virus is still in circulation,” said Craig Alexander, chief economist at Deloitte Canada.

But not every Canadian industry has been hard hit, either. Some Canadian businesses have closed during the pandemic, yet others have thrived amid COVID-19, such as e-commerce companies and others that have harnessed the power of online sales.

For example, the Canadian arm of mega-retailer Walmart Inc. said it is looking to hire 10,000 new workers as soon as possible, including employees who will pick items for online orders and drivers to deliver them.

Moreover, the federal government’s recent Throne Speech said the Liberals and Prime Minister Justin Trudeau were committed to extending their wage subsidy for businesses through to next summer. There was also “further support” pledged for hard-hit industries such as tourism, hospitality and the performing arts.

Still, that won’t soften the blow for businesses that can’t innovate their way out of a pandemic, such as a restaurant or an airline. Government support in the form of wage subsidies and interest-free loans may have kept them from going bust thus far, but it may not do so forever.

“For these segments that aren’t going to be able to recover, potentially for a year, I think we are going to see those insolvencies go up,” said Pedro Antunes, chief economist at the Conference Board of Canada.

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There is also additional concern that Canada, being a trading nation, will have at least part of its economic recovery hinging on that of its trading partners. After all, who is it that builds the planes and provides the fuel for the airlines that aren’t flying as much?

Yet, in the United States, Canada’s biggest export market, the COVID-19 crisis has been worse. A scenario in which trading partners are struggling could very well lead to Canadian companies struggling as well.

“If the economic recovery in the U.S. stalls, then it will hurt our Canadian export industries and that could lead to renewed weakness in Canadian employment,” Deloitte’s Alexander said.

Canadian merchandise exports already dipped one per cent lower in August, according to Statistics Canada. And one of Canada’s major exporting sectors, energy, has been squeezed by the pandemic and a drop in oil prices this year.

That pressure is producing major job cuts, such as oil and gas company Suncor Energy Inc.’s intention to lay off as many as 2,000 employees over the next 18 months. A company spokesperson recently told the Post that Suncor had expected transformation plans would shrink its workforce, but that weak oil prices and COVID-19 had forced the company to speed up its cost cuts.

Other sectors may have to cut back if they have no one to sell to, whether that be to a family looking for somewhere to eat or a massive corporation looking to source a decent barrel of crude.

“We do expect employment to keep increasing,” the Conference Board’s Antunes said. “But in some segments we may actually see it go the other way.”

Financial Post

? Email: gzochodne@postmedia.com | Twitter: @GeoffZochodne