The price of gas influences employment outlook

The decrease in gas prices detracts from perspectives of several Canadian companies with regard to sales, investments and employment over the next twelve months. But other economic factors help paint a clearer picture…

 

These are the results revealed by the Bank of Canada, after surveying 100 Canadian companies on company perspectives over the spring months. Several respondents seem to have a slight drop in confidence, in part due to the lower price of gas. Remember that a barrel of crude oil is currently sold at around $50 US, while it cost $107 US back in June 2014. This constitutes a spiraling drop, which today has repercussions on business activity across the country.

 

The energy sector mainly affected

Logically, many business leaders in the Prairies and in the energy sector confirm being disadvantaged by current gas price levels.  A frame of mind which seems to be spreading to other Canadian regions and other activity sectors since a large part of the Bank of Canada survey respondents do not anticipate a significant increase in sales over the course of the next twelve months. The same observation is found on the side of investments in machinery and equipment. The majority of businesses do not see themselves investing massively until next spring.

Concerning employment outlook, the Bank of Canada reports that they are at their lowest point since 2009, even if the balance of opinion remains positive. The quarterly survey reports that “hiring intentions are weaker for most sectors and regions, but especially for firms tied to the energy sector, which plan to reduce the size of their workforces in light of lower oil prices.

A few weeks earlier, a report by the Conference Board of Canada forecasted that the oil industry would lose 8000 jobs in 2014. Since the beginning of the year, workforce reductions have multiplied among the major names in the sector. Last March, Talisman Energy announced the layoff of almost 200 employees and contract workers, most of whom were based at their head office in Calgary. At Nexen, 300 employees are expected to be laid off.

 

A positive impact on the American economy

Meanwhile, the picture is not all bleak, since “many businesses indicate that lower oil prices and a weaker currency support their business outlook, and the majority anticipate a positive impact from strong U.S. economic growth”, as stated in the Bank of Canada survey. But even if the country is expected to profit from the renewed health of the American economy, we must still wait a while before these effects become visible in terms of employment for Canadian businesses.

 

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