CIBC predicts strong small business activity into 2003
Retail, service sector to lead gains

Canada’s economic health largely depends on the health of its small business sector, according to a comprehensive CIBC report on small business released today.

Small business accounted for 75% of total employment growth in Canada over the last year. In B.C., Quebec and Manitoba, virtually all employment growth was due to the hiring activities of small business. Low interest rates, healthy consumer spending and further outsourcing activity by large firms will support relatively strong Canadian small business activity in the coming 12 months.

“The recent economic recovery saw an impressive rebound in small business activity that, in the first half of 2002, was growing at an estimated annualized rate of 5.7% — notably higher than the rate in the economy as a whole,” said Benjamin Tal, CIBC senior economist. “While overall economic activity in the coming six months is expected to be somewhat slower than the pace at the start of the year, small businesses in industries that benefit from consumer spending will see the strongest growth.”

The report projects that small business activity in retail trade in 2003 will continue to outpace activity in the economy as a whole, while small firms in the business service sector will continue to show solid performance. The low interest rate environment will keep activity in the housing market relatively strong, a fact that should benefit small business activity in industries such as plastic and wood products.

“Confidence is notably up for small firms in the manufacturing sector due to ongoing improvement in business conditions,” said Tal. “Firms with under $10 million in revenue are reporting a doubling of orders and unfilled orders from earlier in the year and are comfortable with their inventory levels.”

The report identifies regional differences in predicted growth for 2003. Quebec is expected to see the fastest acceleration in small business activity, reflecting the outstanding employment growth in the province, solid consumer spending, a strong housing market and improvement in the manufacturing sector. Ontario is expected to build on its recent momentum with outsourcing in manufacturing activity and persistent, strong consumer spending supporting small business activity.

There are also some positive signs from small business activity in B.C., but overall performance in 2003 is still expected to be below the national average.

The gradual recovery in the agriculture sector should benefit small business activity in Saskatchewan, but overall activity will remain relatively weak.

In New Brunswick, the worst appears to be over with small business activity in 2002 likely to outpace the performance in the previous two years.

Small business activity in Alberta is projected to remain strong, with high oil prices and strong manufacturing activity providing positive spin-offs to the small business sector.