Strategy

Economic conditions: Seven cities in seven days

From Stephenville to Prince George to Yellowknife, businesses and workers are dealing with the worst economic climate in decades. But there are pockets of hope, and while some are cautiously optimistic and others are fearful, recession weighs on everyone’s mind. Canadian Business shows you what the statistics don’t in our cross-Canada checkup.

The Canadian economy is poised to contract by 1.2% this year. Or 1.4%. Or maybe it’s 3%. Such varied and constantly shifting forecasts are useful only up to a point: the recession is affecting Canadians in ways that statistics cannot show. What’s really going on out there? Canadian Business sent staff writer Joe Castaldo to visit seven cities in seven days, from one end of the country to the other, to find out how businesses and workers are dealing with the worst downturn in decades.

What emerges is hardly a definitive picture of the state of the economy, but rather a series of snapshots of the concerns and struggles of Canadians as the economy contracts. Some were fearful, others cautiously optimistic. And not all said they were hurting. But even those happy few said the recession is very much on their minds—and whatever relative prosperity they may be enjoying could be short-lived.

Stephenville, Nfld.
Where local business failed, the oilsands have provided. But for how long?

“I’m the last employee,” says Mel Dean, unlocking the door to his office. “We used to have 275 people, but now I’m the last man standing.” His office window provides a view of an empty field. Just a few years ago, that field was adjacent to a sprawling pulp-and-paper mill owned by Abitibi-Consolidated Inc. Dean worked at the mill, most recently as its continuous-improvement manager, for 19 years while it was operating. But the company shut it down in 2005. Dean’s final job is to oversee the dismantling of the mill, a task that will be completed by the end of the year. He works alone out of one of the three remaining buildings on the site. “In early January, we had three contractors on the site,” he says. “That was fun. I had people to talk to.”

The recession is causing similar closures in other areas of Canada, but Stephenville, in western Newfoundland, is a reminder that economic turmoil is nothing new for some towns. Unfortunately, here, things could get worse for Stephenville.

Many residents thought the mill’s closure meant the end for the town, but Dean, who also sits on the local chamber of commerce, says the impact was less severe than expected. The saving grace may well have been the Alberta oilsands; many laid-off employees travel between the two provinces, earning money out west and spending it back home. No one knows for sure how dependent Stephenville’s economy is on the oilsands (the town is awaiting a report to be completed), but officials acknowledge the amount of oilpatch money flowing into town is significant. Without it, Stephenville could be in trouble.

Residents like Allan Campbell will feel the impact as projects are delayed out west. The 57-year-old isn’t sure where his next job will come from. Campbell started work as a civil construction co-ordinator in the Fort McMurray area last June. The money was a big draw, and so was the idea of steady employment. “In six months last year up till June, I probably missed 10 or 12 weeks of work because there’s not enough work to keep us going,” Campbell says of his former construction job in Stephenville. Now, even employment in Fort McMurray is not as steady as it was. “When the contract finishes, I thought I would have no problem finding another job. That’s pretty uncertain right now out there,” he says.

Charter flights to Fort McMurray continue to operate on a weekly schedule from the airport, but the two flights from Deer Lake, about two hours northeast of Stephenville, were cancelled at the end of January as work in Alberta slowed down. Rumours are swirling in Stephenville that the same thing could happen here. “Some of these employers are saying, ‘We’ve still got a job for you, but if you’re gonna come, you’ve got to pay your own way,’” says John MacPherson, executive director of the town’s Long Range Regional Economic Development Board. The concern is that residents may have to choose between staying in Newfoundland or moving west permanently to find work. “It may be bad for those individuals because they may have huge liabilities they’re not going to be able to afford if they come back here making significantly less,” says Brent Pottle, who operates a local contracting firm. “The better option would be to stay up there.” That means fewer people buying snowmobiles, cars and houses in Stephenville. Combined with a shrinking population — it decreased by more than 7% between 2001 and 2006 alone — the prospect is worrying.

As for Pottle, his firm Whitestone Group is preparing for one of its busiest years as a result of millions of dollars in promised infrastructure spending in the province, but it’s a fairly small operation, with a maximum of 15 employees. Pottle says it’s unclear whether the local job market could support migrant workers, should they start returning home. “We could be on the dawn of a big issue, but there’s no sign of it yet,” he says.

One issue Stephenville already faces is that most of the area’s youth ultimately leave. Part of the reason is the lack of private business in town to provide jobs, something Dean is concerned about in his role on the chamber of commerce. A task force was set up after the mill closure to attract business, but aside from a few public-sector initiatives, not a single company opened up. “I’m at a loss as to why we weren’t able to attract any here,” Dean says. But the fact the town has survived thus far is cause for cautious optimism on Dean’s part. “If you can maintain what you have, you’re doing good,” he says from the office he’ll have to vacate in a few months. “Growing the economy is difficult.”

Halifax
In oil and hedge funds we trust — for now.

John Allen is still grappling with last year’s dramatic surge in commodity prices — not the recession. The founder and operator of Propeller Brewing Co. in Halifax has seen input costs skyrocket, particularly hops, which went from $5 a pound to more than $20 over the span of roughly six months. Even so, Allen has expanded his business by 20% each year for the past four years, and most of his problems have been related to grappling with that growth. But growth has slowed slightly over the past couple of months, and Allen isn’t sure what to expect in the year ahead. “I have a feeling that all we’ve been experiencing from October on has been in the stock markets. That’s not the real economy,” he says, adding there may be more tangible effects to come. “We may be okay in our semi-depressed continual state, but we shouldn’t get smug about it. We’re always semi-depressed here, and that’s nothing to brag about.”

There are signs of a further slowdown: Container cargo at the Port of Halifax dropped 21% last year compared to 2007. The Halifax International Airport Authority and its partners have put off building a new hotel. And two Nova Scotia companies ceased construction on two oil-and-gas rigs, due to lack of demand.

Nevertheless, the latter industry has yet to be seriously impacted, according to Mark Healy, chair of the Offshore/Onshore Technologies Association of Nova Scotia. Deep Panuke, a $700-million offshore natural gas project of EnCana’s, is on track to be producing by 2010, and ExxonMobil will be drilling another production well at Sable, its offshore natural gas project. What worries Healy, however, is that investing in new projects is not as attractive as it once was since commodity prices have fallen. “There’s nothing right now that says to me we’ve got a definitive company signed up and guaranteed to do exploration drilling in order to find the next big project,” he says.

Healy sees cause for optimism in the number of exploration licences that have been granted, and points out at least two companies, BEPCo and Canadian Superior Energy, are interested in drilling this year if they can obtain a rig. (In a sign of how rapidly things can change, Canadian Superior filed for bankruptcy protection a week after Healy spoke.)

The growth of the local financial services industry has also been slowed. The provincial government made a push to attract such companies in recent years, and five international hedge fund administration companies have since set up in Halifax. “Everybody is taking a little bit of a pause,” says Scott Montreuil, director of Citco Fund Services in Canada. “I’d be lying if I said they weren’t.” Like the other hedge fund administration companies in Halifax, Citco derives its revenue from assets under management. And with markets down across the board, it is not pulling in as much as it once did. Three people were let go from the Halifax office, but Montreuil boasts he’ll hire this year. “I have 160 seats here right now, and we have about 90 staff. So I have 70 seats I can fill,” he says.

Another hedge fund administrator, Butterfield Fulcrum Group, has its office a couple of blocks from Citco. Managing director Sylvain Lacoursière says he’s heard of companies in the industry that have laid off up to 10% of their employees. Halifax may have been spared a similar fate because it’s a low-cost jurisdiction. “We’re fairly inexpensive,” he says, “and the companies tend to cut where there are higher costs per employee.” Butterfield, on the other hand, has lifted a hiring freeze that had been in place for almost a year.

Lacoursière says his only concern is that the hedge fund industry rebound. “It seems like things are stabilizing now, so we’re hoping things will be good. I’m confident about it, yeah,” he says, adding: “I guess.”

Oshawa, Ont.
The new reality: plant closings, unemployment.

Oshawa is a General Motors town. The city of 148,000, located 45 minutes east of Toronto, may have diversified beyond GM over the years, but the automaker still employs about 8,000 people here, and its presence is felt in many places. Walk into a local Royal Bank of Canada branch, for example, and you could be greeted with a sign inviting GM workers to attend seminars about their pension and severance options.

Gary Hope has worked on the assembly line for more than 20 years. Standing in a parking lot across from the massive plant, Hope says Oshawa could be a ghost town as a result of looming job losses. The truck assembly plant closes in May, affecting 2,600 employees. Another 700 workers were laid off in February when the car plant eliminated its third shift.

The shrinking presence of GM is difficult for Hope to talk about without getting emotional, and he speaks of the vehicles assembled here with pride. He understands shifting production to save costs, but laments the lack of quality at other plants. “It’s so ridiculous, it just makes you mad,” he says. The burly worker is blunt when asked if there are decent-paying jobs available elsewhere in the region. “Not anymore there’s not,” he says. “I don’t know where anybody would go.”

Employment is very much on Chris Buckley’s mind, too. The president of the Canadian Auto Workers Local 222 says members frequently stop him around town to ask him about the economy. “The most consistent question is, ‘Where can I find a job?’” he says. “And that’s what hurts the worst.” Each assembly-line position creates 1.5 jobs in spinoff employment, meaning the impact of cuts at GM is severe. Buckley grew up in Oshawa and went to work for GM after high school, like many current employees. “If you wanted a good job with good benefits and good wages, you needed to work at General Motors,” he says. “That was the norm.”

That era has long since passed, and it’s not only autoworkers who are facing trouble. Norm Mackie is the vice-president of Oshawa-based Mackie Moving Systems, a fourth-generation family transportation company with 500 employees, some of whom are located in Mississauga, Ont., and Montreal. The company has reduced its dependence on the auto industry over the past few years, but business is still down as the entire manufacturing sector struggles. Mackie laid off 12 workers in November; there could be more when GM’s truck plant closes. “This year is going to be a grind,” he says. Already Mackie is receiving job applications from truckers daily — something that was unheard of up until recently. “Five years ago, truck drivers were very hard to find,” he says. “They were gold.”

The decline in the auto industry also affects parts manufacturers such as Lear Corp., which has been laying off workers in the neighbouring town of Whitby. With funding from the provincial government, Lear set up an employment centre in Oshawa to help jobless workers. Connie Snelgrove, herself once employed by Lear, is a co-ordinator at the centre, which had 323 clients when it opened in 2007. The centre took on another 123 people when Smurfit-Stone Container Corp. closed its Whitby facility in October, and a further 145 employees were laid off from Lear on Dec. 23. “I’m not confident that there are enough jobs,” Snelgrove says.

The centre has been successful in helping more than 100 people find work in areas such as construction and skilled trades, and has placed another 70 in school or retraining programs. But even when work is available, the wages are not what people are used to. “You’re lucky to get $14 an hour,” Snelgrove says, compared to the $27 an hour many were making at Lear. Finding work for those over 40 is a particularly daunting task, since employers are more likely to hire younger applicants. “It’s really devastating and heartbreaking to keep sending them on interviews when they probably aren’t going to get the job,” Snelgrove says. The situation will only become worse when GM’s truck plant closes. “It’s going to be scary,” she adds. Another Lear factory in Ajax, west of Whitby, makes seats for the GM truck plant and is scheduled to shut down this year, putting the remaining 160 or so employees out of work. (The facility employed nearly 600 two years ago.)

Snelgrove has seen more people walk into the centre lately to ask about its services, and already a few are milling around early this morning. One of them is John Riley, who lost his assembly job of 13 years at Lear in Whitby two days before Christmas. He recently enrolled in a pharmacy assistant training course, but at 59 years old, he’s not certain what jobs will be available for him when he’s finished. “There are lots of jobs if you can work for $7 or $8 an hour,” he says. Riley lives alone outside of Oshawa and says he can sell his apartment if it comes to that. But he doesn’t think it necessary. “I will get a job,” he says confidently.

Portage la Prairie, Man.
Some security in the bounty of the land.

A popular refrain in Portage la Prairie is that people have to eat, even during a recession. Since Portage’s economy is largely based on agriculture, many in this town of more than 20,000 hope to avoid the turmoil afflicting other areas of Canada. Two huge facilities process potatoes locally, and the town, an hour west of Winnipeg, is home to a large oat-milling plant. Not terribly exciting workplaces, maybe, but they’re one reason why the economic peaks and valleys here are about as flat as the landscape.

Manitoba is expected to be one of only four provinces to eke out growth this year, according to the Conference Board of Canada. The local Portage news certainly doesn’t convey a sense of pending doom either, as stories about curling tournaments and traffic signs capture the headlines. But that doesn’t mean Portage’s residents are exactly buoyant.

“The recession has put enough of a scare into me,” says Jim Pallister, a fourth-generation agricultural producer who operates a 13,000-acre farm growing mainly beans, canola and wheat. The farm is successful, but Pallister won’t be expanding his property any time soon, likely leaving that decision up to his successor. “Even the most confident and enthusiastic business person has to be realistic,” he says. “It would be risky to take on a bunch more debt right now.”

The recession has affected Pallister in a few ways, not all of them bad. The record prices for fertilizer and fuel that were eating into profits last year have come down, but so has his revenue. Fortunately, Pallister last year locked into long-term contracts for his products, notably canola, which he’s selling for more than $500 per tonne. Canola usually sells for around $300–$400 per tonne, and it’s still at the higher end of that range, so it should be a safe crop in the next couple of years. Such pricing might seem like a steep drop from last year’s $700 high, but Pallister says those prices were far from normal.

What concerns him most is not so much the economy, but government. “I’m confident we can do anything and survive anything in an environment of sound policy,” he says. But that’s something lacking in Canada. For instance, Pallister points out the Canadian Wheat Board stifles business, since growers must use it to sell wheat and barley intended for use as food rather than selling on an open market. He’s also disturbed by the provincial government’s moratorium on expansion in the hog industry in certain parts of Manitoba, including Portage la Prairie, so an environmental assessment can be completed. And he’s bemused that Fisheries and Oceans Canada is poking its nose into an irrigation project on his neighbour’s property to investigate the impact on wildlife. “The department of fisheries — in the Prairies,” he says wryly.

Vegetable grower Doug Connery has similar worries about government, particularly excess regulations that increase expenses. For example, his labour costs have gone up 7% annually for the past three years, and now he has to be licensed as an employer of foreign workers. “Why?” he asks. “I’ve only been bringing foreign workers into this country for 35 years.”

Connery’s business has already survived through a downturn in the ’70s and high interest rates during the ’80s, and he expects to do the same this time around. He’d just like a break from government. “It’s sad to say, because government really should be partnering with business,” he says, “and now business seems to have to fight in order to keep what they have.”

Saskatoon
In a province with a relatively robust economy, many are betting the good times will last.

On a frigid February morning, Karl Miller deftly weaves his way over uneven floors and between construction workers. He darts up a flight of stairs and enters a room buzzing with more tradesmen. Miller apologizes for the fact the place looks like a “war zone” at the moment, but explains it will ultimately be a two-bedroom condo. This room and suites like it will sell for between $275,000 and $600,000 in a building known as the King George.

Saskatoon is not exactly synonymous with luxury condos, but Miller is working on two such projects as president of Meridian Development, in which he has 50% ownership. The King George, a converted hotel, will have 21 units, as well as office and retail space. The other, Luxe, will have 24 units and 5,500 square feet for retailers; units there begin at $550,000 and ascend all the way to $1.2 million. “They’ll be of the highest quality in Saskatoon,” Miller says. “They’ll be untouched.”

Building two luxury condo projects during a recession takes a lot of faith in the economy, a fact not lost on Miller. “It’s somewhat scary when everyone else is doing so badly and everything feels pretty good here,” he says. Saskatchewan’s economy will be the strongest anywhere in the country this year, according to the Conference Board of Canada, growing at 1.6% on the back of high potash prices and infrastructure spending. The relatively healthy backdrop helps give Miller the confidence that Meridian’s luxury condos will sell.

But for now, only two of the units at the King George have been pre-sold, and the company is still looking to fill 14,000 square feet of office space before the project is completed by the end of the year. Four units have pre-sold at the Luxe. Miller says the pre-sales have to do with the psyche of those who live in the city. “People really need to be able to go up and touch it,” he says. “They don’t like buying off plans.”

Back at the King George site, someone grabs Miller to explain that two employees are being let go today because of poor-quality work. This is unusual. Last year, Meridian had been hiring virtually anyone, since skilled workers were hard to find. But now, as Alberta and Ontario shed jobs and people move back to Saskatchewan, Miller can afford to be choosier. “We’re not just interested in hiring the guy with the pulse anymore,” he says.

Miller isn’t the only one who’s upbeat about Saskatoon. At Union Securities Ltd., investment adviser Mark Smith-Windsor says the demand for resources will continue to drive the economy. He points out there were potash projects in the province that were feasible with prices around $150 per tonne. “They’ve still been successfully selling potash in the $700–$900 range, so there’s a lot of room to fall before the projects break,” he says. His own business has been severely impacted, however. The company specializes in financing junior resource companies, which have been hit badly. Although Smith-Windsor expects more bankruptcies to occur in the sector, he concedes it has to happen. “You need weak companies to fail in order for there to be rebirth in the market,” he explains.

But Smith-Windsor does recognize the risks of Saskatoon’s resource-based economy. Projects in the Bakken oilfield, located in the southern part of the province, could be scrapped if the price of oil remains low. “If prices decline a lot further, we’ll be in trouble just like everybody else. The government is very reliant on resource revenues.” He pauses, before adding: “The boom took longer to get here, too.”

Yellowknife
Financing for exploration has dried up, and the diamond industry is just trying to hang on.

At six-foot-two, with broad shoulders and a bushy moustache, Lane Dewar cuts an imposing figure that gives the impression not much can slow him down. The prospector, based in Yellowknife, has spent more than two decades acquiring properties in the North and selling them to junior resource companies — a tough job that requires spending time in the wilderness, and dealing with the threat of wolves and extreme weather. Dewar has survived two plane crashes in his 25-year career, and neither was enough to keep him from prospecting. But the recession has. He calls it “the final nail in the coffin for mineral exploration.”

Dewar hasn’t sold a property in two years. The main reason? He says it’s because the regulatory process is slower and more cumbersome in the Northwest Territories than in other areas of Canada, and companies aren’t interested in working in the North as a result. And now that financing for exploration has dried up, Dewar’s job is next to impossible. During previous downturns, he was able to sell properties, but not this time. Exploration spending will total only $28.4 million this year, compared to $133 million in 2008, according to the N.W.T. Chamber of Commerce.

Dewar currently holds 10 properties. He thinks that he can eventually sell a few of them, although he’s not sure when. Part of the problem is that he has to do physical work on the properties in order to maintain his ownership. That means spending thousands of dollars on a charter flight and taking time away from his son, which is difficult to do as a single parent. He may have to take another job in the meantime to earn money. One of his peers is trapping this year instead of prospecting, and another has chosen to cut firewood, which doesn’t bode well for the future. “If you’re not going to have exploration now, you’re not going to have any mines in the future,” Dewar says.

Already, two of the three existing diamond mines in the Northwest Territories are running into trouble as demand and prices fall around the world. De Beers laid off 128 employees along with 90 contract workers at the end of February, and Diavik Diamond Mines suspended the development of its underground mine. The diamond industry is the primary economic driver in the Territories, and when it suffers, other businesses feel the pain. For example, Tli Cho Landtran Transport in Yellowknife typically employs more than 100 truckers to shuttle along ice roads to the mines, but this year it will have 40 fewer drivers, even though it is receiving more job applications than ever before. “We’re getting 100 applications a week,” says Ron Near, the company’s safety and compliance supervisor. “ Usually, we’d get five or six.”

The diamond-cutting and -polishing industry has also been hit. “My outlook right now is just survival,” says Robert Bies, director of operations for Arslanian Cutting Works. The business is tough at the best of times in the North, because most of the industry is concentrated overseas where labour costs are drastically cheaper. A drop in demand can be devastating. “It’s going to be extremely difficult for us over the next couple of years,” Bies says.

The company’s next-door neighbour, Laurelton Diamonds, shut down its polishing facility last month, putting 38 people out of work. Arslanian trimmed its workforce to 37 from 50, and there could be more cuts to come. The company is bringing in consultants to try to improve the factory’s efficiency in a bid to stop the bleeding. “If we were to shut down, the reality is we would never get going again,” Bies says. “It’s a possibility, but let’s hope it doesn’t come to that.”

Prince George, B.C.
Where the downturn hits hard, pleas to “give these people a break.”

With more than four decades of experience working in British Columbia’s forestry industry, John Brink has seen his share of slowdowns. But this one is different. “I have never, ever seen a downturn of this proportion in those 44 years,” he says. “We are perpetually in a survival mode day-to-day.”

The 68-year-old is the founder and sole owner of Brink Forest Products in Prince George, a city where the faint smell of wet cardboard in the air from local pulp mills distracts from the view of lush green forest that surrounds it. Brink’s firm mainly processes lower grades of lumber for use in housing construction, but ever since home building began plummeting in the United States three years ago, the company’s sales have plunged. He estimates $25 million in annual revenue at the most is the new norm, whereas he was pulling in double or even triple that amount a few years ago. Between 75% and 80% of Brink’s sales are to the U.S., and his business likely won’t pick up again unless American housing starts continue the surge seen in February, when they unexpectedly rose 22%.

Brink has been forced to cut his workforce to 175 from 225 over the past year. When asked how much more his company can stand, he launches into a long story about arriving in Prince George from the Netherlands in 1965 with $25.74 in his pocket, no English skills, and a desire to build his own lumber company — one that has so far remained in business while peers have collapsed. In short: “We will survive,” he says.

Sawmill closures and temporary shutdowns are becoming more common throughout the forestry industry. Sinclar Group, a private company based in Prince George, operates seven facilities in northern B.C. in different facets of the industry. “They’re all running on reduced shifts,” says interim president Greg Stewart. The company shut down one division, Winton Global Lumber, indefinitely last year, affecting about 200 employees both locally and in Bear Lake, north of Prince George. “We’re hopeful we’ll find a solution that will allow us to restart that operation,” says Stewart, “but in light of this market, it’s not going to be an easy solution to find.”

Laid-off forestry workers are turning up more often in credit counsellor DavidLow’s office. He generally sees business increase in mid-January. “But come Jan. 2, our phones started ringing, and they haven’t stopped ringing since,” he says. “There are a lot more people who are in more dire straits than usual.” Typically, people would come to Low after a divorce or because of mismanagement of expenses. Now, the No. 1 reason is unemployment. Low often sees husband-and-wife teams who used to work at mills and are now on employment insurance, receiving half their previous incomes. Clients hail not just from Prince George but also from surrounding communities, such as Mackenzie, where the local economies are less diversified and the impact of shutdowns is more severe. As his clients’s situations become worse, Low is also finding creditors tougher to deal with. “You’d think banks would be more flexible,” he sighs. “Give these people a break, unless you want the houses of half the town of Mackenzie in your lap.”

Employment centre M. Turner & Associates in Prince George is also dealing with greater volume. “It’s been absolutely horrible,” says employment coach Bev Collins. The centre typically took on about 40 new clients a month; recently that number has jumped to 160. Some of them are returning from the oilsands as developments slows, and they have skills that ordinarily would be in demand. “It’s unusual to see so many journeymen unemployed,” Collins says. “That’s never happened before.”

The city has plans to further diversify the economy away from forestry, however. One goal is to become a transportation and logistics hub. Prince George is already situated at the crossroads of two major highways, and a runway expansion was recently completed at the airport. Brink thinks the chances of becoming a hub are solid, given its proximity to major transportation routes. As for his own company, he has plans to eventually finish building a sawmill that could employ 150 people. The project was shelved three years ago, when forestry started to nosedive. Now he has to wait for housing starts to climb further (they’re still nearly 50% lower than at this time last year), and for the economy to stabilize. “I don’t think there’s going to be much improvement,” Brink says of the year ahead. “I just hope we start reaching a bottom by midsummer.”