Optimism abounds despite markets
Small businesses thriving across Canada
Monday, March 19, 2001
It is not news that the U.S. economy is wobbling beyond a so-called hard landing, when growth in gross domestic product falls below 1 per cent into recession -- where there are two or more quarters of zero growth or contraction.
And Canada, in spite of assurances that "it can't happen here," won't avoid some of the pain of its neighbour's hard times.
Yet if hard times are coming, Canada's small-business firms aren't feeling it. At least, not yet, says Garth Whyte, senior vice-president of national affairs for the Canadian Federation of Independent Business. The CFIB, the largest group of small to medium-sized firms in Canada, monitors business expectations.
"Our members are almost optimistic about what they see happening in 2001," Whyte says. "You can question their crystal ball, but you cannot question their responses."
Data from a survey conducted between Oct. 27 and Nov. 26 last year show that members expect a 4.5-per-cent rise in the employment rate in small to medium-sized firms, Whyte says. "Nortel [Networks Corp.] may be dropping thousands of jobs worldwide, but our members say they can't find enough appropriately skilled people to fill their positions."
The bullish view of CFIB members is based on optimism about their own prospects in 2001. The most optimistic small firms are in Ontario and Alberta, where 57 per cent of small- to medium-sized firms' managers say they anticipate strong performance this year. Saskatchewan, where 42 per cent of respondents see a strong year, is the most pessimistic. Small to medium-sized firms in manufacturing and financial services feel the most confident about 2001; firms involved in agriculture, construction and transportation are the least optimistic.
Looking back at 2000, half of the owner/managers say their firms performed better than in 1999; another 36 per cent say they performed at least somewhat better than in 1999. Only a fifth of respondents are clear in saying that their results in 2000 trailed those of a year earlier.
Given their bullish views on 2000 results and what they expect this year, it is not surprising that these owner/managers predict they'll not only hire more people, but that 78 per cent of those hired will be in full-time positions, the CFIB says.
The highest job-growth rates for small to medium-sized firms will be in Quebec, Ontario, New Brunswick and Prince Edward Island, the CFIB says. The lowest rates will be in British Columbia and Newfoundland, it says.
When it comes to capital investment, the CFIB expects a smooth continuing of spending on machinery, equipment, computers, vehicles and property. In surveying spending intentions, about 44 per cent of respondents anticipate no change in spending plans, 27 per cent say they will boost spending and 29 per cent expect to reduce spending.
"Plans to increase capital spending are most predominant among firms in the primary products and manufacturing sectors. This finding reflects the higher intensive use of capital equipment among firms in these sectors than in others," the CFIB says. The least ambitious capital-spending plans are in businesses in services, and especially in agriculture where low crop prices have reduced earnings, the CFIB adds.
Concluding its survey, the CFIB notes that most small businesses in all sectors and regions should perform well or better in 2001 than last year. "The Canadian economy is poised for another successful year," it says.
Whether Canadian small- to medium-sized firms escape the worst of the U.S. economic downturn will depend not only on export orders flowing to Canadian factories, but also on consumer confidence and the creditworthiness of business.
Some slowdown is already in the cards because of a reduction in wealth caused by plummeting stock prices on the widely watched Nasdaq Stock Market index, which has dropped almost 3,000 points from 5,048.62 a year ago. About $3.6-trillion (U.S.) has been wiped out of household net worth by this collapse in stock values. Nasdaq stocks, which rose 86 per cent in 1999, are broadly lower, and as many as 1,700 listed companies have lost 50 per cent or more of their value in the past 12 months, The Wall Street Journal reports.
Business declines of this scale impair the balance sheets of companies, reducing their ability to spend and the willingness of other firms to ship goods. Drastically lower share prices mean that stockholders -- which boils down to households, in most cases -- must pull in their belts and reducing purchasing.
Small- to medium-sized firms can be characterized as operating on Main Street rather than Bay Street. Respect for entrepreneurs and insulation from volatile stock and commodity markets that, to some extent, characterize the retail business, plus a feeling that they are part of a community and should work through contractions, may account for the relatively mild reaction of small to medium-sized firms to the hard times that appear to have overtaken major capital markets.
"Small- to medium-sized firms appear ready to do a lot better than big ones in the next year," Whyte predicts.