Economic Forecasting – a Valuable Part of Career Management
Hidden within the seemingly mundane intricacies of the job search are latent forecasts about the economy. But are these sophisticated enough to actually help people? The key example I am drawing from today is a Canadian job search forum, where job-seeking individuals are concerned about the direction of the oil industry in south-central Canada. 3-6 months ago, the fossil fuel industry would have been #1 on the Burning Glass or Wanted Analytics job aggregator services; today – not so much.
$50 per barrel oil has caused problems for the oil industry in Canada. At that price a great deal of production in Canada is no longer economically feasible. The result is layoffs and fewer job opportunities in an industry that used to be fruitful for Canadians who studied trade skills. This crop of Canadian trade-skilled graduates are now entering the marketplace and asking their trusted elders whether or not the oil industry is a viable career destination. These supposed mentors tell them to stay away, far away. Within this advice is the prediction that the oil industry is at a new normal where a great deal of production is extraneous. However such a forecast is only true for a short period of time. Oil might be cheap for another 6 months but will it be this cheap in a year?
In order to understand why oil is so cheap we have to understand who produces oil, and how it is produced. There are a select few countries with massive supplies of oil. Four of these countries we are interested in for this discussion: Canada, Iran, Russia and Saudi Arabia. Oil is produced by the last 3 countries at a level which it deems appropriate. That is to say, control of oil production of these countries is centralized enough to adjust to shifting levels of supply and demand to singularly benefit the country’s interests.
When the price of oil dropped due to a large increase in supply and even larger projected increases in supply, a subject to which we will return later, Saudi Arabia in particular had the choice of whether to cut oil production or to not interfere. Traditionally Saudi Arabia would respond to declining prices by cutting enough oil production to influence the market. This use of market power caused the oil shock of the 1970’s which crippled the American economy. This time, however, Saudi Arabia chose to let oil production continue unabated. The reason for this was partially political, although we don’t know for sure whether it was under pressure from their American ally to punish Russian military adventures in Ukraine or whether it is targeted at their rival Iran.
But the other reason for this policy has to do with how oil is produced and why the supply rose in the first place. One of the most important technological developments of the last decade was a response to high oil prices, which in turn were caused by Chinese industrialization and instability in the Middle East. This technological development was fracking. Of course fracking itself isn’t the only development: a wide variety of sophisticated oil production processes became economically feasible as a result of expensive oil. But fracking is important because of how scalable it is. The process maybe triples the potential supply of oil. And 2015 is the date when fracking was projected to come online.
But the Saudis play a smart game and realized that cheap oil made fracking much less economically feasible. By not cutting oil production and keeping oil cheap, they can kill fracking in the cradle or at least stunt its development.
Now back to Canadian job-seekers. Those who have given up on oil jobs are responding to a wave of low prices that is not economically sustainable: at some point Saudi Arabia will have to cut production or it will incur heavy losses. A new “normal” might not be $100 per gallon oil, but it might be $80 per gallon oil. This would make fracking less competitive than it was but still economically viable, along with other oil production processes.
Betting against oil production is a bad bet in the long run. Even though shifts in the equilibrium of supply and demand may damage the cost structures of certain processes, the problem of ‘peak oil’ is still present without these processes. There are other factors that make these industries attractive, namely their domestic status and the possibility of making them more cost competitive in the future. The fundamentals of Canadian oil production are pretty sound once the oil market reaches a new equilibrium.
So what I am saying is that the supposed mentors of these Canadian job-seekers are actively damaging their career by following irrational and short-sighted sentiments. What these job-seekers need is a rigorous, data-driven research perspective on the market that analyzes industries for their fundamentals rather than suffering the deception of short-term investor mentality. What is needed along with this is interpretation, personal support and a counselor actively helping the job-seeker discover and develop their strengths.
Quotes are bandied about that 65% of current jobs, especially high-growth, high-pay “jobs of thefuture”, didn’t even exist 10 years ago, while robotics and automation will make ____% of current jobsobsolete. What is a student or recent grad to do? Throw the dice, roll the dice, cross your fingers and hope, just take what comes? Work at Starbucks?
Can there ever be a truly predictive model of where the hot “in demand” jobs will be that will be sustainable for the life of your career? The answer is Yes. That’s what CareerFit has spent the last year developing, based on experience of the labor market and economy gained over the last 20 years.