With its legions of bureaucrats in what used to be thought of as “jobs for life,” Ottawa’s economy was once considered to be a recession-proof bastion of stability in a boom-and-bust world. Today, that ground is a lot shakier.
© Peter Kovessy
By David Sali
With the Harper government in the midst of its bid to purge tens of thousands of positions, the Conference Board of Canada said earlier this year that real GDP in Ottawa-Gatineau will rise just 1.3 per cent in 2013, down from the 1.9 per cent the organization predicted last September. That ranks the region 26th among 28 census metropolitan areas.
Federal government cutbacks are playing a major role in that less-than-inspiring outlook. The Conference Board says nominal spending by the feds on goods and services, including labour costs, will grow by an average of 1.9 per cent annually between 2013 and 2016, down from the 5.4 per cent average over the past decade.
Those spending cuts are reflected in the region’s job figures.
Ottawa-Gatineau lost 700 public service positions in May, bringing the number of workers employed in public administration down to 152,400, the lowest level since April 2009 and a decline from a peak of 177,300 workers in February 2011. The Conference Board predicted employment would fall in the region by 0.8 per cent in 2013, before recovering to modest growth of 1.1 per cent next year.
What does all this mean to Ottawa-Gatineau? OBJ takes a closer look at how the federal cuts are affecting various sectors of the local economy.
When it comes to retail sales, the capital’s outlook remains quite healthy despite the federal downsizing, according to one Ottawa analyst.
Barry Nabatian, director of the market research division at Shore Tanner & Associates, said the expansion projects underway at three of the region’s largest shopping centres – St. Laurent, Bayshore and the Rideau Centre – proves consumers are still willing to open up their pocketbooks despite the lingering economic uncertainty.
“They’re expanding because they’re all doing well,” Mr. Nabatian said, noting the Rideau Centre produces sales of more than $1,000 per square foot, well above average for Canadian malls.
Ottawa is among the top three cities in Canada in average income, he said, but is still wanting when it comes to higher-end retailers – a need that is being addressed by the pending arrival of Quebec-based Simons and the U.S. chain Nordstrom.
“These are the stores that our city still lacks,” Mr. Nabatian explained, adding the Bay is also going more upscale with the addition of Lord & Taylor goods.
The cutbacks might even be helping some sectors of the economy, he said, noting many laid-off government workers walk away with hefty severance packages. Those taking early retirement generally have good pensions and plenty of leisure time – a winning combination for everybody from golf equipment retailers to the Great Canadian Theatre Co.
“That’s why Ottawa’s theatre community is thriving right now,” Mr. Nabatian said. “Anything to do with leisure, sports and recreation are doing quite well.”
Some businesses at the top of the food chain such as jewelry stores and luxury car dealerships are taking a hit, he said, but one retailer’s loss is often another’s gain.
“When (consumers) postpone buying, they spend more on repairs and renovations to cars, houses, et cetera,” Mr. Nabatian said. “The Canadian Tires (and similar retailers) will still do well.”
Luc Lachapelle, owner of Ottawa-based RenovAction Home Improvements, tells a different story.
Mr. Lachapelle, who has been in business in the region for about 15 years, said even many federal employees who still have their jobs are wary of shelling out for home renovations for fear they might be next on the chopping block.
“If I was in that scenario, I’d be darned nervous,” he said. “You’re not in a position to spend.”
RenovAction, which employs about a dozen people, is on track to match last year’s revenues, Mr. Lachapelle said, but only because he and his crew are doing more out-of-town jobs – which adds to expenses – and working harder than ever.
He said the federal government has left workers twisting in the wind by stretching out the layoffs, which has eroded consumer confidence.
“Uncertainty kills, and that’s what they’ve created,” he said.
When government and its employees – the engine that drives the region’s economy – stop spending, the ripple effect hurts everyone, Mr. Lachapelle said. He had been planning to pour hundreds of thousands of dollars into upgrading his office space, but now, “We’re not taking that kind of risk.”
That in turn is money that’s not being funnelled back into the local economy, he noted. He also had to lay off a member of his administrative staff.
“Everybody’s in limbo,” Mr. Lachapelle said. “Unfortunately, the whole city is a government town.”
The news also isn’t so good for local realtors and those looking to unload properties that are suddenly a lot less desirable.
According to the Ottawa Real Estate Board, 1,339 homes were sold in the city last month, a 2.7 per cent drop from the 1,376 that changed hands in July 2012. Home sales have consistently been down so far in 2013, with only April showing an increase over the previous year.
Angela Augsbury, a sales representative at Coldwell Banker Rhodes, said potential homebuyers in the capital tend to get skittish any time the feds start announcing cuts.
“We’re very dependent on the federal government and we’re addicted to the stability the federal government gives us,” she said. “As soon as there’s a little bit of risk, people just don’t (buy).”
Still, it’s not all doom and gloom in the real estate business. The average sale price in July increased 6.6 per cent to $359,551, thanks to a jump in the sale of higher-end homes. Ms. Augsbury said that despite the feds’ downsizing, “Ottawa has it so good” compared with many other regions that are less insulated from economic highs and lows.
“I think the perception of the cuts is much bigger than the actual cuts,” she said. “The federal government isn’t going anywhere. I’m not getting a new career any time soon.”
Meanwhile, downtown office vacancies have soared to a 10-year high, largely due to the feds moving out of buildings in the core.
But at least one major commercial real estate broker sees a silver lining in what appears to be a depressing trend. Kelvin Holmes, managing director of Colliers International’s Ottawa division, said the high vacancy rate might be just the wake-up call the city needs to relax rules such as height restrictions that have hindered private-sector development in the core.
“The city of Ottawa has kind of sat back and let the federal government solve all of our real estate problems for us,” said Mr. Holmes. “We’ve got to get out of that complacent mindset.”
A few other businesses are seeing an increased demand for their services in the wake of federal cuts. Financial planners, for example, say they are busy dealing with clients looking for advice on what to do with that buyout or retirement package.
“Job loss or a change in a compensation agreement can have a big impact, and I have experienced more people turning to financial planning to make the best decision for their financial future,” Mitch McLean, division director with Investors Group in Carp, said in an e-mail.
Mr. McLean said many of his clients are especially concerned about the impact of buyouts and severance packages on their tax bills. He stressed the importance of the three Ds of tax planning: defer, deduct and divide.
“We do an analysis based on one’s goals that includes weighing options based on tax planning and see if tax deferral can work to their advantage,” he said. “There have been some instances when the person receiving the severance package did not have much RRSP room available and it was advantageous to include their spouse for tax planning opportunities.
“Wealth is about habits, and a well-thought-out plan can help save tax, and pay dividends.”