There’s some less-than-thrilling news on the Canadian business front.
According to new figures from Statistics Canada (StatCan), in October 2022, the number of active Canadian businesses declined by 0.3% (-2,563), following three months of no growth or negative growth. This is definitely worth noting: it marks the first time on record that the number of active businesses didn’t post positive growth for four consecutive months, excluding the start of 2020 with the onset of the pandemic.
According to StatCan, October’s contraction in the number of active businesses was due to a decline in the opening rate from 4.6% in September to 4.2% in October, combined with the slight increase of 0.1 percentage points in the closure rate (4.8%).
The number of active businesses dropped or changed very little in all industries in October, but the overall drop was mainly driven by contractions in retail trade (-0.5% growth rate; -432 change in active businesses) and accommodation and food services (-0.5%; -338). This was followed by other services, except public administration (-0.5%; -322) and construction (-0.2%; -301).
“The variation of the number of active businesses in October is in line with the obstacles that businesses are expecting to face over the fourth quarter of 2022,” reads the report. And it’s safe to say there are still major obstacles as businesses try to recovery from the pandemic and its relentless lockdown measures -- especially in provinces like Ontario -- in the face of a looming recession.
StatCan points to the Canadian Survey on Business Conditions, which highlights some of the greatest obstacles businesses were expected to face over the fourth quarter of the year. These included rising inflation (58.4%), rising cost of inputs (48.1%), and recruitment and retention of skilled employees (41.7%). Of course, inflation doesn’t impact all businesses equally. According to StatCan, Canadian businesses in retail trade (74.6%) and accommodation and food services (71.3%) are more likely to see inflation as a potential issue.
Meanwhile, the construction industry ranked as having the fourth-highest share of businesses expecting obstacles related to rising inflation (61.3%) and the second-highest regarding concerns over recruitment and retention of skilled employees (52.0%).
According to StatCan, October’s drop in the business opening rate was largely driven by the decline in the re-opening rate (-0.3 percentage points), compared to the entry rate, which held relatively steady. At the same time, the business opening rate remained below its 2015-to-2019 historical average of 4.7% for the second consecutive month in October -- a drop that was led by professional, scientific and technical services (-0.4 percentage point change in opening rate; -477 change in business openings), followed by construction (-0.2 percentage points; -302), transportation and warehousing (-0.6 percentage points; -291), and retail trade (-0.3 percentage points; -274).
When it comes to Canadian businesses that closed their doors, October was the third consecutive month that the closure rate settled above its historical average. With that said, the business closure rate changed little in most industries from September to October. StatCan says that the slight increase in the overall business closure rate was driven by accommodation and food services (+0.3 percentage point change in closure rate; +168 change in business closures), construction (+0.2 percentage points; +155), professional, scientific and technical services (+0.1 percentage points; +128) and other services (except public administration) (+0.1 percentage points; +100).
Canadian businesses
Pointing to updated data that includes up to April 2022, StatCan says that the exit rate (permanent closures) dropped 0.1 percentage points to settle at 1.6% in April 2022 – a figure that’s slightly below its historical average of 1.7%. This marks the first decrease in exit rate since November 2021 (-0.2 percentage points). The exit rate held steady in all industries, with the exception of arts, entertainment and recreation (1.8% exit rate), which posted a 0.2 percentage point increase from March to April 2022.
In most industries, the exit rate was within 0.2% of its respective historical average. The industries where the exit rate was furthest from and higher than its historical average were transportation and warehousing (2.7% exit rate vs. 1.5% historical average), real estate and rental and leasing (2.4% vs. 2.0%), professional, scientific and technical services (2.0% vs. 1.7%), and arts, entertainment and recreation (1.8% vs. 1.5%).
Meanwhile, the exit rate was below its historical average in mining, quarrying, and oil and gas extraction (1.5% exit rate vs. 1.9% historical average) and accommodation and food services (1.2% vs. 1.6%).
As we move into 2023 -- one in which economists expect the potential of at least a mild recession -- only time will tell if the halt in growth trend continues.
