Canada’s technology sector has grown rapidly in recent years, as homegrown startups and foreign giants set about hiring hundreds of thousands of well-educated and talented workers. But that expansion has recently slowed to a crawl, as high inflation, interest rate hikes and a downturn for cryptocurrency have taken a lot of optimism out of the sector.
Chris Albinson, CEO of Waterloo-based incubator Communitech, says the pullback in the U.S. is more pronounced because there are more of what he calls “go for the moon” companies with dubious fundamentals suddenly finding themselves unable to adapt to the new reality.
Canadian tech companies are faring comparably better at the moment because generally speaking they are much better stewards of capital, he says, but that doesn’t mean there isn’t anxiety.
“There are some founders that were 18 years old when the last recession happened,” he told CBC News. “There’s going to be stress on the system, but I think they’re ultimately going to come out of that much stronger.”
Valuations for tech giants like Meta, Amazon, Apple and Netflix have cratered in recent weeks, and where once there was a fierce war for talent, many tech giants are implementing hiring freezes and even cutting staff.
U.S. streaming giant Netflix announced Thursday it’s cutting another 300 jobs, the second time in as many months it has announced layoffs of that size.
Crowdsourced website layoffs.fyi has documented more than 20,000 tech job cuts in the past two months alone, mostly in and around major U.S. technology hubs like Seattle and San Francisco.
While cutbacks in Canada are less dramatic, they are happening.
Canadian financial tech unicorn Wealthsimple laid off 13 per cent of its staff last week, citing “unprecedented” levels of volatility in explaining the cut of roughly 160 positions. “Many of our clients are living through a period of market uncertainty they’ve never experienced before,” CEO and founder Michael Katchen told staff in announcing the news.
Jacqueline Au was among those let go from the Toronto-based business. She suspected something might be up when she noticed the company started spending less on her department, marketing, earlier this year. “When that happens … it’s natural for the team to think, well, what’s gonna happen to my job, if we’re not spending any marketing money?”
It was her first time being laid off, and while she said it was unpleasant, she’s enjoying the time off to think about what her next career move may be. She enjoys the technology sector, she said, but she knows that more job cuts are coming so she’ll be choosy about who she signs on with next.
“I think that this is just the beginning, I think the industry is going to have to keep trimming the fat to stay afloat,” she told CBC News. “I think there’s going to be ups and downs, but winter is here to stay.”
Vancouver-based Thinkific laid off about 20 per cent of its staff in April, and Sumeru Chatterjee was one of the 100 or so people let go. Originally from India, Chaterjee came to the U.S. to attend university and worked in various tech jobs for about a decade before making the leap to come to Canada in 2020.
“Last year, the general sentiment across the industry … was we need to grow, we need to rapidly expand our market lead to hire lots of people,” he told CBC News. “So the layoff was sort of a dramatic turn of events.”
He says the technology sector grew so quickly in the past decade largely by burning through venture capital cash to gain market share without having to worry about things like profits. “Normal business metrics like profitability and cash flow were … frowned upon almost, and I think a lot of people are reawakening to the fact that if you if you want to run a business, you need to have some fundamentals like a profitable business and customers that pay you.”
‘Surviving so you can thrive’
The mood from the stage of the Collision Conference in Toronto, where tens of thousands of technology lovers from more than 100 countries converged in person to discuss all things digital, was unabashedly positive this week. But on the sidelines, there were whispers of bursting bubbles.
“Right now everyone who is innovating and/or investing in tech or in startups is trying to understand what exactly is happening in this moment,” said Deena Shakir, a partner at venture capital firm Lux Capital, based in Silicon Valley. “We’re the topic of conversation at every partner meeting, and every lunch and coffee.”
While she pushes back on the notion that the tech sector is back in a bubble, she adds one thing that’s clearly bursting are expectations of endless growth at the expense of profitability — which is a good thing, she says.
“We’ve been advising … our companies to think long term to make sure that they have enough capital reserves to weather this storm,” she said. “Surviving so you can thrive is an important mindset to think about.”
Survival is key in the cryptocurrency space, which was rocked when a $12 billion trading platform known as Celsius froze withdrawals earlier this month. That impacted major companies like Crypto.com and Coinbase. Though they ramped up during the pandemic, they’re now laying off thousands of workers in the U.S. and Canada, and rescinding job offers.
Many crypto companies were scheduled to attend Collision in person, but Paddy Cosgrave, the conference’s founder and CEO, said many of them pulled out at the last minute. Celsius CEO Alex Mashinsky was one of those slated to attend, but didn’t.
“I can understand why [he] had to pull out,” Cosgrave said. “I think he’s got a major fight on his hands to sort this situation.”
Whatever dark cloud may be overhanging the crypto space, Cosgrave says it had no impact on overall attendance, which topped 35,000 — a zeal that makes perfect sense to him.
WATCH | Cryptocurrencies are in a freefall:
“When things become uncertain, everybody goes searching for answers,” he said. “And certainly in the last few weeks, there’s been a lot of big questions about what exactly is going on in technology and in particular in crypto.”
While layoffs may be on the short term outlook, Cosgrave says the future for technology in Canada and abroad still looks bright.
“What happens when you lay off very smart software engineers? Many of them go and start new companies, and some of those companies are already here,” he said.
WATCH | Tech sector hit with layoffs, cutbacks:
Fill up today! Here's when gas prices will rise seven cents a litre in Ottawa – CTV News Ottawa
Ottawa motorists will want to fill up the gas tank on Saturday, before prices start to rise at the end of the weekend.
Gas prices dropped to their lowest level in six months at Ottawa stations on Saturday, at $1.599 a litre. According to ottawagasprices.com, some stations in Ottawa were selling gas for $1.54 a litre.
Prices have dropped 20 cents a litre in Ottawa since Thursday.
However, Canadians for Affordable Energy President Dan McTeague is telling motorists to fill up the gas tank today.
McTeague forecasts prices will rise seven cents a litre in Ottawa and across Ontario on Sunday to 166.8 cents a litre.
Gas prices in Ottawa have dropped 56 cents a litre since hitting a record high of 215.9 cents a litre on June 11. A drop in demand and rising fears about a recession drove down the price of oil. The Ontario government cut the gas tax rate on July 1 from 14.7 cents per litre to 9 cents per litre.
Speaking on Newstalk 580 CFRA’s Ottawa at Work on Friday, McTeague said the recent drop in gas prices is welcome, but “don’t expect it to last.”
“The markets, I think, are overestimating the amount of demand drop we’ve seen in the United States and underestimating the severest supply shortage that we’re having,” McTeague said.
Pandemic benefits were too generous with businesses, stringent with workers: experts – CP24 Toronto's Breaking News
Nojoud Al Mallees, The Canadian Press
Published Saturday, August 6, 2022 11:21AM EDT
Benefits rolled out at the onset of the COVID-19 pandemic allowed vulnerable Canadians to stay healthy while maintaining an income, but business supports were excessive and show the outsized influence of business groups on public policy, economists say.
Nearly two and a half years ago, the federal government faced an unprecedented task of shutting down the economy to slow the rapid spread of COVID-19. That shutdown led to a series of pandemic relief benefits aimed at softening the blow to workers and businesses, with the two most prominent programs being the Canada Emergency Response Benefit and the Canada Emergency Wage Subsidy.
Recent analysis from Statistics Canada based on census data shows two-thirds of Canadian adults received pandemic benefits in 2020, with these benefits cushioning income losses and reducing inequality.
Previous analysis from the federal statistics agency also found that, as was expected, usage of the wage subsidy program correlated with a lower probability of closure and fewer employee reductions.
While there was little time to spend on crafting the benefits and fine-tuning the details in March 2020, economists are now assessing the successes and failures of these programs in retrospect.
City of New York University economics professor Miles Corak, who has written analyses on these programs, says any evaluation needs to account for the uncertainty people and governments were facing at the time and the urgent need to keep people healthy.
That said, Corak said while the CERB was “terribly successful,” the Canada Emergency Wage Subsidy was a “huge failure.”
“The Canada Emergency Response Benefit got money out the door quickly in time to keep people at home, which is what we wanted to do to save lives,” he said.
On the other hand, Corak said the CEWS “came too late, it wasn’t well-targeted and dramatically over-insured (businesses).”
The CERB was quickly announced in March 2020 and $2,000 monthly to Canadians who lost income because of the pandemic shutdown. That was followed soon after by the CEWS, which subsidized businesses’ employee wages by 75 per cent in hopes of encouraging companies to hold on to their staff.
Corak says that by the time the wage subsidy was introduced, many businesses had already parted ways with their employees.
Another source of criticism for the wage subsidy program was that it subsidized wages for all workers at affected businesses, rather than simply those whose jobs were at risk of being lost, making it especially costly.
Jennifer Robson, an associate professor of political management at Carleton University, also pointed to the wage subsidy program as being unsuccessful. Robson said businesses that would have otherwise closed down for reasons unrelated to the pandemic remained artificially afloat because of the wage subsidy.
“These were not businesses that were going to return to profitability,” Robson said.
Statistics Canada data shows the number of business closures spiked dramatically in April 2020, but a sharp decline followed, bringing monthly closures to a lower level than pre-pandemic.
About 31,000 businesses closed in August 2020, while nearly 40,000 had closed in February 2020.
In hindsight, Corak said the wage subsidy program should have been smaller in scope and targeted to larger businesses with specialized needs where it would be important for companies to hold on to the same employees, such as the airline sector.
The Canadian Federation of Independent Business has said the wage subsidy was “crucial” for small business owners and noted in April this year that only two of five of its members reported being back to normal sales.
Adrienne Vaupshas, the press secretary for Finance Minister Chrystia Freeland, said in a statement the focus of the government at the onset of the pandemic was to protect jobs and ensure a strong economic recovery.
“Today we have recovered 114 per cent of the jobs that were lost during the darkest months of the pandemic,” Vaupshas said.
In contrast to what some economists have characterized as excessively generous supports for businesses, some low-income Canadians have experienced clawbacks to social assistance benefits because they collected CERB. The Canada Revenue Agency is also hoping to recoup benefits paid out to over 400,000 Canadians whose eligibility was questioned.
In response, anti-poverty group Campaign 2000 has called for CERB amnesty.
Corak said while it’s reasonable to ask those who fraudulently collected benefits to pay them back, businesses should be held to the same standard.
“The concern I would have is the asymmetry in this response between individuals and businesses,” Corak said.
The CFIB has called for more loan forgiveness for small businesses who accessed loans through the Canada Emergency Business Account. The federal government is already offering partial loan forgiveness if repayments are made by the end of 2023.
Robson said when it comes to shaping public policy, business interest groups have well-resourced public relations teams to further their interests.
“There is nothing like that for individual low-wage workers,” said Robson.
Corak noted that at the start of the pandemic, there was a focus on the role of front-line workers, but with time, this shifted to small businesses.
“I think the small business lobby was very effective in informing individual MPs and putting pressure on cabinet and the government to respond in a way that many unseen and unheard mothers, fathers workers and families just didn’t have that same voice,” Corak said.
The danger of the wage subsidy program, Corak said, is that it sets a precedent for providing excessive subsidies to businesses and thereby stifling innovation.
“We’re almost moving towards a basic income for small business rather than a basic income for individuals,” he said.
This report by The Canadian Press was first published Aug. 6, 2022.
'Head-scratcher:' Economists weigh in on Canada's surprise job loss – Yahoo Canada Finance
Canada’s July jobs reading caught economists by surprise with a loss of 30,600 positions rather than an expected gain of 15,000 for the month.
Despite the negative reading coming on the heels of a still larger decline in June, the unemployment rate stuck to its historic low of 4.9 per cent based, according to Statistics Canada, on a drop in Canada’s participation rate.
“Canada’s labour market is not in disarray,” said National Bank economists Kyle Dahms and Alexandra Ducharme, in their jobs commentary, noting that year-to-date, the private sector has added 110,000 positions. The pair said they continue to see “resilience in the Canadian economy” making them outliers among other big bank analysts.
After digesting July’s numbers, most economists appear to have taken away two narratives:
The Bank of Canada won’t be deterred from raising rates further, and possibly with another bigger than normal hike.
July’s jobs reading hints at an economy that is beginning to “lose steam.”
Here are the economists in their own words:
Rishi Sondhi, TD Economics
“That’s two in a row in terms of weak headline jobs prints, and employment has now averaged an 11k decline over the past three months. This is consistent with our view that economic growth will soften in the second half of the year. The details skewed to the softer end in July, as full-time employment accounted for a larger share of the overall jobs decline than in June, and hours worked also fell. The latter is particularly notable as it could signal a soft print for monthly GDP, following flat growth in May and a sub-trend gain in June (based on Statcan’s preliminary estimate).”
Stephen Brown, Capital Economics
“The second consecutive monthly decline in employment will raise a few eyebrows at the Bank of Canada but, with the unemployment rate unchanged at a record low and wage growth still strong, we doubt it will prevent the Bank from hiking its policy rate by a further 100 bp at the next two meetings…. While the increase in average hourly earnings was a little lower than we expected, at 0.4% m/m, that gain is still too high for comfort in terms of meeting the Bank’s 2% CPI inflation target. At the margin, the July LFS may tilt the odds a bit toward a 50 bp rate hike in September rather than a 75 bp one, but we doubt it will be the deciding factor.”
Andrew Grantham, CIBC Economics
“The Canadian employment figures were somewhat of a head-scratcher again in July, with employment falling for a second consecutive month but the unemployment rate remaining historically low. The 31K decline in jobs came against consensus expectations for a 15K gain, and added to the 43K decline in the prior month. However, a two-tick decline in the participation rate meant that the jobless rate remained at 4.9%. Job losses were strangely concentrated in the services sector, including wholesale & retail, education and health. With some of those sectors reporting high vacancy rates, labour supply rather than demand appears to be the main issue. That said, the major difference between today’s report and last month’s is that wage growth unexpectedly decelerated (to 5.4% y/y from 5.6% and against consensus expectations for 5.9%) although we always caution that the LFS wage series is extremely volatile month/month. While today’s figures muddy the waters further for policymakers, the Bank of Canada will likely focus on the historic low unemployment rate and still strong wage growth to justify another non-standard rate hike at its next meeting.”
Carrie Freeston, RBC Economics
“In the months ahead we will begin to see the economy lose steam. We are already observing jobless claims rising South of the border, as U.S. labour demand begins to cool. Canada will not be far behind. With the Bank of Canada having raised the overnight rate by 225 basis points (to 2.5%) since March, and at least another 75 basis points slated for the fall, inflation pressures will ease. And labour markets are expected to cool. Our forecast calls for the unemployment rate to begin to trend higher in the coming months and into 2023.”
Douglas Porter, BMO Economics
“Canada’s job market is clearly losing momentum in a hurry, likely due to both a marked cooling in the broader economy but also because a lack of available workers. The downward drift in the participation rate, especially for the 15-64 group, is worth watching closely, with the potential to tighten the labour market further. For the Bank of Canada, the takeaway will be that while growth is clearly cooling, conditions remain drum-tight and wages are stirring. We believe this backdrop is consistent with another rate hike at the September meeting, but of a less aggressive nature than the mega 100 bp move in July. We look for a 50 bp hike at that time.”
Marc Desormeaux, Desjardins Economics
“July’s data were well below the consensus projections, and as such shaved our call for Q3-2022 real Canadian GDP growth to just below 1% (q/q saar). Decelerating wage gains suggest that some progress has been made in the fight against inflation, but the rate of hourly earnings growth continues to track prices closely. Accordingly, while we think inflation may have peaked and have noted previously that the Canadian economy is historically sensitive to interest rate increases, we believe the Bank of Canada will put more weight on the extremely tight labour market and raise rates by 50 bps at its September meeting.”
Kyle Dahms/Alexandra Ducharme, National Bank Economics
Canada lost 31K jobs in July, a second consecutive monthly decline. Despite this development, Canada’s labour market is not in disarray. July’s losses were concentrated in public sector jobs. This sector indeed suffered its worst loss outside of a the pandemic since 1976 (-51K), a perplexing development considering the state of public finances at both the federal and provincial levels. Private sector employment, while also down in July, is still up 110K year-to-date with continued contribution from construction and manufacturing during the month. Despite the July decline, the unemployment rate remained unchanged at its lowest level since 1970 due to a 0.2 pp drop in the participation rate, a third decline in four months. With the unemployment rate remaining historically low, we still see resilience in the Canadian domestic economy. This robustness is also confirmed by the evolution of the wages of permanent employees, which grew 5.4% over the last twelve months, down from June’s 5.6% print but still historically high. At this juncture, the Bank of Canada is still on track to hike at its next meeting on the 7th of September with labour shortages continuing to persist according to the latest figures by the CFIB (Canadian Federation of Independent Business).
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