Growing unease about the U.S. economy is posing a new threat to Canada's job market, with some small businesses delaying hiring and mulling reduced hours as they fight to keep their costs in check.
While the federal government has been urging the small business sector to propel job creation in Canada for months now, those companies are growing increasingly nervous about padding their payrolls. Not only is U.S. demand waning, wild fluctuations in the Canadian dollar are eroding margins on exports at a time when domestic cost pressures are also on the rise.
A slowing U.S. economy, underscored by a weak showing in the second quarter, coupled with the political stalemate over raising the U.S. debt ceiling is amplifying worries over the health of Canada's largest trading partner.
With the Canadian dollar expected to coast comfortably above parity with its U.S. counterpart for the remainder of this year, some small businesses are putting expansion plans on hold as they try to assess the potential for more fallout from the U.S.
Aberfoyle Metal Treaters is among those that have suspended hiring plans. The company, located near Guelph, Ont., treats and coats metal for industrial manufacturers. It had strong sales in July but has decided to defer expansion plans that would have added six to eight employees to its current 30.
"We're looking at expanding and obviously holding off just to see. I personally think it's going to be 2012 before the economy comes back in manufacturing and you see where the dust settles," said president Harry Hall.
The high-flying loonie is hurting the company's profits. About 20 per cent of its sales are in the U.S.
Jean-Michel Laurin, vice-president of global business policy at Canadian Manufacturers and Exporters, said the Canadian dollar is the biggest short-term concern for manufacturers.
"What we're effectively hearing from members is that their margins are being squeezed. Which explains why you haven't seen a big hiring spree from the manufacturing sector," he said.
According to Statistics Canada, 34 per cent of Canadian employees worked for companies with fewer than 20 employees in June.
Job creation by small businesses has become a familiar refrain for Finance Minister Jim Flaherty, who hosted a roundtable in Burlington, Ont., this week to gauge the views of entrepreneurs. The loonie featured prominently among the concerns of exporters and importers alike.
The Canadian Federation of Independent Business, which represents 108,000 small business owners, warns worries over the U.S. debt crisis could stymie employment growth in Canada.
"Uncertainty is a terrible thing for job creation," said Daniel Kelly, senior vice-president of legislative affairs.
He notes that even before the current frenzy over the U.S. debt ceiling, hiring intentions among Canadian small businesses appeared to be softening.
Additionally, there was a slight increase in the number of small businesses surveyed in June that planned to cut full-time jobs over the next three or four months, according to CFIB's Business Barometer survey. Capital spending plans had also moderated somewhat.
"For those that are fairly dependent [on]or integrated in the U.S. market, they may say, 'You know what? I'm going to hold off on hiring that new person. Or I may scale back my hours a little bit to make sure that I am protected,'" Mr. Kelly said.
Moreover, many are already worried about higher payroll costs now that some provinces have increased minimum wages and federal employment insurance rates are scheduled to rise. "When you are a two- or three-person operation, hiring an additional person is a big, big deal."
Satlantic Inc., a Halifax-based company that develops optical sensors, makes 60 per cent of its sales in the United States and has no plans to curb hiring. Still, president Marlon Lewis concedes a volatile currency could affect future job creation since its staff are paid in Canadian dollars.
For Schulte Industries, the higher loonie is a mixed blessing. While it erodes profits, it also makes some equipment purchases cheaper. The Englefeld, Sask.-based company, which produces rotary cutters, and rock and snow removal equipment, is looking to buy a new plasma cutting tool, at a cost of about $350,000 (U.S.).
"It's a good time to invest in new technologies that will make us more productive and save us costs in the long run," said president Kevin Dow.