March 4, 2010
Economic Snapshot
Stronger profits in 2010 point to full-time job growth
JOHN CLINKARD
consulting economist, CanaData
While many have described the current recovery in Canada as sub-par and “cyclically challenged,” this view is not supported by the most recent quarterly financial statistics for corporations.
Following a 10.9% quarter-over-quarter increase in the third quarter of 2009, the operating profits of Canadian corporations increased by 7.9% quarter over quarter in the fourth quarter.
This was the strongest two-quarter increase in profits since the fourth quarter of 1999.
In the fourth quarter, profits increased in 15 of the 22 major industrial groups.
Although the 4.4% quarter-over-quarter increase in profits of non-financial industries was more subdued than the 19.7% rise in profits of financial industries, the former accounted for 42.9% of the overall rise in total profits.
Within the financial sector, insurance company profits rose by 288% quarter over quarter after a 55% drop in the third quarter.
In banking they were up 16.3% quarter over quarter on the heels of a 13.7% increase in Q3.
Among firms in non-financial industries, profits rose by 12.9% quarter over quarter in professional and managerial services; 12.5% in real estate; 12.1% in wholesale sales; 9.7% in oil and gas; and 4.4% in manufacturing.
As the chart illustrates, increases in operating profits in the initial stages of the business cycle expansions that started in mid-1992 and in late 2001 appear to have triggered a pickup in investment and a concomitant rise in full-time job creation within the next one to two quarters.
As noted above, the upturn in profits during the second half of 2009 — following the recession that started in mid-2008 — appears to be consistent with previous business cycles.
Moreover, although year-over-year growth of full-time employment has not yet moved into positive territory, the increase in investment intentions recently reported by Statistics Canada suggests that it will soon do so.
John Clinkard has over 30 years’ experience as an economist in international, national and regional research and analysis with leading financial institutions and media outlets in Canada.
Data source: Statistics Canada. Chart: Reed Construction Data – CanaData.
