Going forward, Canada’s labour market will be split in two.
That’s because low oil and gas prices have negatively affected Alberta, but positively affected central Canada, says Benjamin Tal, deputy chief economist of CIBC World Markets.
“In Alberta,” he explains, “we’re going to see a significant decline in the level of employment. The unemployment rate will rise by between 4% and 6.5%, [and] that’s big. We’ll also see significant out[ward] migration. So [it’s] a relatively dismal picture.”
However, “for the rest of the country, especially Ontario and Quebec, the energy story is positive. Consumer spending will improve and this [is] a positive for the labor market.”
Whenever natural gas takes a beating in Canada, manufacturing wins because the sector consumes a lot of the commodity. “Sixty percent of energy inputs in manufacturing are actually natural gas,” he adds.
Plus, a weak dollar and strong demand from the U.S. will bolster manufacturing jobs in Ontario, Quebec and Eastern Canada. This is a sustainable story, says Tal, given that “natural gas prices will remain low, [and] given supply demand fundamentals. [I’m] very bullish for Canadian manufacturing—much more so than the U.S. manufacturing sector, which isn’t benefiting to the same extent.”
In terms of investing, Tal says investors should focus on eastern and central Canada due each region’s increase in wages and consumer spending. He favours consumer-oriented stocks that focus on consumer activity.
He also suggests investors look for companies in the manufacturing sector that rely heavily on natural gas. “And think of [going] long in those companies,” he adds.