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Canadian Small Businesses Resilient through Recession: RBC Economics

TORONTO, January 5, 2011 Canadian small- and medium-sized businesses (SMEs) better weathered the recession relative to large firms in the private sector, according to a new report on small businesses and the labour market from RBC Economics.

"Countering concerns that smaller enterprises are generally more impacted by economic downturns, we found that smaller businesses endured the recent recession better than their larger counterparts," said Paul Ferley, assistant chief economist, RBC. "The relative success of private sector SMEs likely reflected lower exposure to external markets such as the United States, which saw greater weakness compared to Canada's domestic economy."

The RBC report focuses on private sector employment numbers, a key business indicator, and found that private SMEs in Canada with fewer than 300 employees were better able to cope with the effects of the recession and have been quicker to recover than larger private enterprises. In addition, businesses that depend on the U.S. export market had a more difficult time than those more focused on the domestic market which was not hit as hard by the recession.

"During difficult economic times, businesses often find themselves laying off workers and stalling their hiring initiatives," said Mike Michell, director, Small Business, RBC. "However, private sector SMEs appear to have created business strategies that have ultimately helped them come out of the downturn relatively unscathed.."

Employment Performance
Overall, employment at private SMEs fell 4.2 per cent during the recession, in contrast to 5.5 per cent among larger private firms. Compared to large manufacturers, private sector SMEs seem to have had lower exposure to markets in the United States.

When looking at all firm sizes, private goods-producing industries - including manufacturing, construction, mining, oil and gas, logging, forestry and utilities - took the biggest hit to employment through the recession, declining 11.1 per cent from a fourth quarter peak in 2007.

Regional Findings
Trends in employment numbers at SMEs and large firms were found in most provinces across the country.

  • Newfoundland & Labrador: SME employment in the region remained strong during the economic downturn. Though payrolls on average declined by 1.2 per cent, they have since surpassed previous peak levels. In contrast, employment at large firms declined more sharply at 4.3 per cent. Manufacturing bore the brunt of the declines with total employment falling by 29.2 per cent, accounting for 90 per cent of the overall decline at large firms.

  • Nova Scotia: Employment in Nova Scotia was stable throughout the recession, although employees at large firms fared better than SMEs as payrolls reduced by 1.7 per cent and 2.9 per cent respectively. The domestic trade sector was the main source of weakness among SMEs, accounting for 44 per cent of job losses in this category.

  • New Brunswick: Manufacturing was the main source of job loss in New Brunswick with employment in this sector falling by 11.3 per cent between the third quarter of 2008 and the second quarter of 2009. Overall, employment among SMEs contracted 13.2 per cent compared to a drop of 9.6 per cent at large firms.

  • Quebec: Employment at large firms in Quebec fell 6.2 per cent, with more than half of the decline coming from manufacturing, while employment at private SMEs fell 2.6 per cent after peaking at the end of 2008. Transportation and warehousing sectors experienced general weakness with employment falling at SMEs and larger firms by 7.3 per cent and 5.7 per cent respectively.

  • Ontario: Job losses in Ontario's manufacturing sector were responsible for half of the decline in total private-sector employment from the third quarter of 2008 to the fourth quarter of 2009. Within manufacturing, job losses were concentrated at large firms where employment fell by 19.2 per cent during this period, compared to a decline of 10.4 per cent at SMEs. Weakness was also recorded in the retail and wholesale-trade sectors where SMEs reduced payrolls by 4.1 per cent and large firms by 1.3 per cent.

  • Manitoba: Employment at Manitoba's private SMEs held steady throughout the recession as larger firms reduced payrolls. As seen in other parts of the country, employment losses in Manitoba were concentrated within manufacturing, which accounted for the entire 1.5 per cent decline in employment at SMEs and one-third of the 8.1 per cent reduction in payrolls at large firms. The bulk of the remainder of large firm employment weakness was within the retail and wholesale-trade sectors, where employment fell by 10.8 per cent, but rose 0.5 per cent at SMEs.

  • Saskatchewan: While employment at larger firms plunged by 10.5 per cent, employment at Saskatchewan's private SMEs increased by 1.8 per cent after initially falling 0.7 per cent. The decreases at large firms were more broadly based compared to other provinces and were led by declines in manufacturing (20.4 per cent), transportation and warehousing (22.3 per cent), and retail and wholesale trade (3.8 per cent).

  • Alberta: Private employment at SMEs in the province dropped 7.4 per cent compared to 5.6 per cent among large firms. The main driver appears to be in the construction sector where SME employment fell by 9.0 per cent compared to a gain of 1.1 per cent at large firms. The employment rate in the manufacturing sector of large firms fell by 19 per cent, whereas SMEs cut payrolls in the manufacturing sector by a more moderate 13.1 per cent. Employment at large firms in the mining, quarrying, and oil and gas extraction industries fell by 16.2 per cent compared to a decline of 7.7 per cent at SMEs.

  • British Columbia: Similar to Alberta, large firms in British Columbia generally outperformed their SME counterparts. Though private employment at large firms dropped 7.4 per cent peak to trough compared to the 6.9 per cent decline at SMEs, a subsequent rebound at large firms currently leaves the drop at 5.7 per cent. This was the case across the province during most of the recession with employment declines at SMEs generally greater relative to large firms. The greatest source of weakness for SMEs was in the construction sector, where payrolls fell by 11.6 per cent compared to an increase of 1.9 per cent at large firms. Most other sectors within the province reverted to the national trend of SMEs seeing less weakness relative to large firms. For example, the largest source of weakness overall was in the retail and wholesale trade sectors with employment at SMEs falling 5.1 per cent compared to 8.3 per cent at larger firms. Manufacturing in the province was also weak with SME employment falling by 11.4 per cent, although this was outpaced by a 14.3 per cent decline at large firms.

A complete copy of the report is available as of 8 a.m. ET, at
www.rbc.com/economics/market/pdf/sme.pdf.

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For more information, please contact:
Margie McNeil, 905-606-1425, margie.mcneil@rbc.com

Elyse Lalonde, Media Relations, 416-974-8810, elyse.lalonde@rbc.com