Canada's economic future depends on support provided by the small business sector during periods of slower job creation, according to Scotiabank's recent small business economic report, Small Business ... Supporting National Employment as Job Creation Slows. Companies in the construction and real estate industries, and related service areas, play a major role in small business growth.

"Small business typically plays a counter-cyclical role," says Mary Webb, Senior Economist at Scotiabank. "This was well illustrated during the early 1990s. When private-sector payrolls were contracting from 1990 to 1993, microbusinesses with less than five staff continued to hire. For the bigger players in the small business sector, the decrease in employees was less pronounced than for larger firms, and they returned to sustainable employment growth more quickly. In contrast, corporations with over 500 employees reported the most dramatic lay-offs during the early 1990s, and significant expansion of their payrolls did not resume until 1997."

Canadian companies of all sizes have been vulnerable to the string of unforeseen events gripping the country, from the SARS outbreak to the recent devastation on the East Coast from Hurricane Juan. Canada is also grappling with more fundamental developments, notably the slow global recovery, extended trade frictions, the Canadian dollar's sharp appreciation and increasing competition from the emerging economies in Asia. Canada's larger corporations are particularly sensitive to these fundamental changes, and their efforts to restructure and reinforce their bottom lines are expected to constrain their hiring into 2004.

In the current environment, small business has the important advantage that it is less exposed to export markets and to the domestic industries where import competition is especially intense. Small business is driven by population growth and domestic spending which remains strong in the housing sector, related domestic suppliers, information technology services and a range of personal services like mortgage financing. Current low interest rates -- and the prospect that the Bank of Canada is expected to ease further if the Canadian economy remains sluggish and the Canadian dollar continues to climb -- should help to maintain momentum in these areas of domestic expenditure as well as reducing the cost of small business financing.

When considering a location for your business venture or a home for your family, Webb's provincial small business economic forecasts may be worth considering:

Published: October 14, 2003

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