Small businesses in Canada ended the final quarter of 2023 with two consecutive months of growth, according to the latest data insights published on Monday, January 8. This reveals that November had the highest monthly growth rate since the Intuit QuickBooks Small Business Index was launched in March 2023, at 1.15%. In December, Canada’s small businesses created another 7,200 additional jobs, with a monthly growth rate of 0.14%.
Despite this late surge, the overall trend during 2023 was mixed, with six months of declining small business employment and six months of growth, according to the latest estimates. Notably, the final quarter began in October with one of the lowest monthly growth rates of the year at a 0.47% decline, but ended it with 42,000 more small business jobs than in Q3. This tells us small businesses in Canada are currently outpacing overall employment growth. According to Statistics Canada's Labour Force Survey, overall employment across all businesses in the economy showed little change in the fourth quarter of 2023. In his analysis, Professor Ufuk Akcigit looks at some of the recent and longer-term trends.
“The Canadian economy has seen a mild rise in small business employment since the end of 2020. However, this long-term upturn has been comparatively slower than the overall economy, resulting in a decline in the share of small business employment from 32.4% to 29.9% during the same period. In the latest quarter, Q4, an additional 42,000 small business jobs were added compared to Q3, resulting in a 0.8% growth for the quarter ending in December 2023—which is identical to the annual growth rate from December 2022 to December 2023 (also 0.8%). We can attribute this to the notably weak performance in small business employment in Canada last summer, when a decline of 0.17% in Q3 of 2023 brought the annual rate of growth down but, with hindsight, paved the way for a rebound in Q4.
“On a quarterly basis, the most substantial increase occurred in the professional services sector, followed by the business services sector. Their rankings were reversed when we look at the full year, with business services experiencing the most growth in 2023 compared to 2022, followed by professional services. Conversely, the most significant decline in employment, observed both quarterly and annually, occurred in the utilities sector, where high interest rates exerted pressure on borrowing costs within this capital-intensive industry.
“Persistent weak productivity growth has been an ongoing issue in Canada, as recently highlighted by Bank of Canada Governor, Tiff Macklem. It is crucial to remember that small and young businesses play a significant role in driving productivity growth. Addressing the productivity challenge becomes increasingly challenging when small businesses are losing ground within the broader economy.”
With two strong months of growth in November and December (0.43% and 1.79%, respectively), the accommodation and food services sector (NAICS 72) had higher monthly growth rates than any other sector in Canada, on average, during the final quarter of 2023. The sector is a major source of small business jobs in Canada, as revealed in the recent Intuit QuickBooks Small Business Index Annual Report.
December’s growth rate was the highest the sector has seen since the Index was launched in March 2023, creating 8,900 small business jobs that month alone. This suggests bars, hotels, and restaurants experienced a better peak season than the year before. This increase in small business employment is likely a contributor to the sector’s overall positive performance in Q4. When it comes to GDP growth, this sector saw a 0.9% increase from September to October and a 1.1% increase year-over-year.
But across 2023, the picture is more mixed for small businesses in the sector, with six months of employment growth and six months of declining employment. In the Canadian Survey on Business Conditions, business owners in the accommodation and food services sector reported labour-related challenges for the fourth quarter, such as recruiting skilled employees (37.6%), shortages in labour (45.6%), and retaining employees (33.7%).
Health care and social assistance (NAICS 62) was another strong-performing sector in Canada in the final quarter of 2023. The Index shows especially strong employment growth in December among small businesses in this sector, at 1.41%, creating 13,400 jobs. This is notable because, like accommodation and food services, the health care and social assistance sector is a significant source of small business employment in Canada. Again, this increase is likely a contributor to the sector’s performance in the latter half of the year. In terms of GDP growth, this sector saw a 0.3% increase from September to October and a 2.5% increase year-over-year.
Like accommodation and food services, the wholesale and retail sector (NAICS 41-42; 44-45) had positive employment growth in December 2023, up by 0.27% (seasonally adjusted) with 2,700 additional small business jobs. This is almost double the national average for the month.
But, following the broader national trend in October and November, the growth in December followed two months of declining small business employment in the sector, suggesting the holiday season was tougher for small retailers in Canada than for bars, restaurants, and hotels. Retail is another major provider of small business jobs in Canada. While the retail sector saw an increase in GDP growth of 1.2% from September to October and a 2.8% change year-over-year, the wholesale sector saw a decline of 0.7% from September to October and a decline of 0.7% year-over-year.
Focusing on monthly growth rates, the three sectors that had the largest declines in small business employment in December 2023 were utilities (NAICS 22), professional services (NAICS 54), and construction (NAICS 23) — in that order. Of these, the construction sector provides the most small business jobs in Canada, where we saw monthly declines in employment through the final quarter of 2023—though the rate of decline slowed as the quarter progressed. In the professional services sector, employment dropped by 0.39% in December. However, as Professor Akcigit notes above, when comparing quarterly growth rates in Q4 against Q3, professional services emerges as a stronger performer overall, compared to other sectors. In short, while recent monthly performance was disappointing, the longer-term trend is better for this sector.
The recent declines in small business employment in these sectors reflects their overall performance in Q4. In terms of GDP growth, the professional services sector saw a 0.2% decline from September to October and a 0.8% increase year-over-year. At the same time, the total value of building permits decreased between October and November by 3.9%.
Across the five Canadian regions covered by the Index (Atlantic, British Columbia, Ontario, Prairies, and Quebec), Quebec performed best in the final quarter of 2023, with positive growth in November (0.05%) and December (0.72%) after negative growth (-0.63%) in October. In November, Quebec was the only region with positive growth. The net gain in Quebec in December was 8,100 additional small business jobs compared to November. Over the longer term, Quebec’s performance through 2023 was more mixed, with six months of rising small business employment and six months of declines. This reflects what we’ve seen more broadly for Canada’s small businesses nationally over the course of 2023. For Quebec, Statistics Canada reported flat employment overall from September to October (across small, medium, and large businesses) and a 1.3% increase between November 2022 and November 2023.
Small businesses in Ontario appear to have had a tougher 2023, overall, than those in Quebec. Here, the Index shows declining small business employment in every month of the year and the largest declines of all Canada’s regions during the final quarter at a 0.8% decline in October, a 0.41% decline in November, and a 0.18% decline in December. December’s decrease equated to 3,400 fewer jobs at small businesses across the region. This contrasts with Statistics Canada’s reports of an increase in employment across the region between November 2022 and November 2023, suggesting a shift in employment from small to medium or large businesses.
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