Despite low interest rates and a generally stable economic environment, 2010–2019 saw the slowest growth among midsize companies and a continual deterioration of their financial performance. That may have to do with the last decade’s winner-takes-all economy. Bankruptcy filings shows that the pandemic made this trend even worse. It’s never been more important for midsize businesses to understand that a booming stock market is not an accurate reflection of the reality for most American corporations.
When the Covid-19 pandemic hit, a record number of companies, many of which had survived for more than 50 or even 100 years, had no other option but to file for bankruptcy. Recent trends don’t bode well for midsize companies that are the bedrock of any nation’s economy.
We used a database approach to show the current plight of midsize companies and examined the recent period of 2000 to 2019, culminating in the pandemic year 2020. We defined midsize companies as those in the middle 40% of all companies listed on the U.S. stock exchanges by market value and identified them on an annual basis based on their market value at the end of previous fiscal year. (The top 30% and the bottom 30% are classified as big and small, respectively.)
Data suggests that a perfect storm has been brewing for midsize companies over the past 50 years. In every successive decade since 1970–79, the annual growth rates of assets, sales, and profits have been declining for midsize companies, which are increasingly struggling to earn profits.
To show the slowing growth trend, we calculated year-on-year percent-growth rates of three financial indicators — sales, assets, and profits — for each midsize company. Sales is the top-line number in income statements and indicates the market size for the company’s products and services. Sales growth indicates whether the company’s business is growing or diminishing. Asset growth shows whether the company is increasing or decreasing its total resource deployment. Profits is the bottom-line number in income statements and shows whether the company is generating a net surplus in its operations. That surplus is used to finance further growth and pay dividends to shareholders.
We calculated the annual percent-growth rate in those three financial indicators for each midsize company and year. We then calculated their medians for the decades 1970–1979, 1980–1989, 1990–1999, 2000–2009, and 2010–2019. For 2000–2009, we removed the fiscal years 2008 and 2009 because of the great recession. We calculated median values because, unlike averages, medians are not affected by any company’s extreme performance. The results are shown in the following figure.
The figure shows that the growth rate in each of the three measures has declined over the past 50 years and was lowest during the decade 2010–2019, despite that period’s having been labeled as a decade of economic recovery. This last decade showed rising population, decreasing interest rates, growth in the hourly wage rate and household income, improving education attainment, and growing GDP. You would expect those factors to have enabled rapid growth for corporations, yet such growth seems to have bypassed midsize companies.
It’s difficult to pinpoint the exact reason why midsize companies haven’t benefited from the past decade’s economic progress, but we offer a few hypotheses. One plausible reason is that businesses that could scale their virtual operations without the need for physical assets benefitted most from the technological progress and economic conditions. As a result, digital disruptors like Amazon, Airbnb, and Uber ate into the growth and margins of midsize companies’ business. Amazon needed large infrastructure, but it could integrate across physical and virtual platforms seamlessly, disrupting many businesses simultaneously. In contrast, midsize companies, particularly those like hotel chains and retail stores that operate with physical assets and infrastructure, lacked not only the dynamism of small companies but also the R&D investment and scaling capabilities of large companies. Furthermore, the last decade was a winner takes-all-economy, with large companies like Amazon and Apple getting even bigger. We previously showed that the economic benefits that came about since the financial crisis of 2008 largely accrued to large companies.
In 2019, we described the changes in market values of midsize companies. The new statistics we present in this article highlight midsize businesses’ struggles in the past decade. During the 2010–2019 period, 39.8% of midsize companies reported a loss, 33% reported year-on-year decreases in sales, and 47% reported declines in annual profit. After removing the influence of outliers, the average earnings-to-price ratio was negative 3.86%. The average return on assets was also negative at 2.36%. The median change in return on equity, a measure of profitability on shareholder value, was negative 4.04%. These results indicate that midsize companies increasingly struggled in the last decade despite the stable and growth-conducive economic conditions.
What happened from 2010–2019 didn’t portend well when the pandemic hit in 2020. We don’t yet have financial reports for the fiscal year 2020 because it typically takes three months to prepare and audit the financial statements before they’re reported. However, we do have another indicator of financial distress: the number of bankruptcies filed by midsize companies. For this information, we rely on the UCLA-LoPucki Bankruptcy Research Database, which tracks bankruptcies filed by companies with assets exceeding $100 million in 1980 dollars (about $310 million in today’s dollars). The database also includes economically important midsize companies. The following figure shows a trend in the number of midsize companies that filed for bankruptcy from 2010–2020.
The highest number of annual bankruptcy filings between 2010 and 2019 was 32 in 2016, and the median and averages during the decade were 11 and 13.2, respectively, per year. That number jumped to 43 in 2020, which is a 226% increase from the annual average and a 291% increase over the median. These numbers are based on data up to November 2020 — if December 2020 data had been included, the picture would look even more stark.
These companies include well-known retail stores like J. C. Penney, Pier 1 Imports, Tailored Brands (brands like Men’s Wearhouse and Jos. A. Bank), and Ascena Retail (brands like Ann Taylor and LOFT). The other large industry groups filing for bankruptcy included oil and gas companies, such as Gulfport Energy; lodging and entertainment companies, such as Marcus Corporation; and travel corporations, such as Hertz. Bankruptcy filings would have been even higher but for the U.S. government’s $2.2 trillion dollar stimulus plan, which included $500 billion earmarked for public corporations.
In sum, despite its low interest rates and stable economic environment, the most recent decade witnessed the slowest growth among midsize companies and a continual deterioration of their financial performance. As shown by bankruptcy filings, pandemic shock made this trend even worse, shaking to their core companies that had survived harder economic hits during the last century. Leaders of midsize businesses must understand that the booming stock market is not an accurate reflection of the on-the-ground reality for most American corporations.
OTTAWA – Canada’s unemployment rate held steady at 6.5 per cent last month as hiring remained weak across the economy.
Statistics Canada’s labour force survey on Friday said employment rose by a modest 15,000 jobs in October.
Business, building and support services saw the largest gain in employment.
Meanwhile, finance, insurance, real estate, rental and leasing experienced the largest decline.
Many economists see weakness in the job market continuing in the short term, before the Bank of Canada’s interest rate cuts spark a rebound in economic growth next year.
Despite ongoing softness in the labour market, however, strong wage growth has raged on in Canada. Average hourly wages in October grew 4.9 per cent from a year ago, reaching $35.76.
Friday’s report also shed some light on the financial health of households.
According to the agency, 28.8 per cent of Canadians aged 15 or older were living in a household that had difficulty meeting financial needs – like food and housing – in the previous four weeks.
That was down from 33.1 per cent in October 2023 and 35.5 per cent in October 2022, but still above the 20.4 per cent figure recorded in October 2020.
People living in a rented home were more likely to report difficulty meeting financial needs, with nearly four in 10 reporting that was the case.
That compares with just under a quarter of those living in an owned home by a household member.
Immigrants were also more likely to report facing financial strain last month, with about four out of 10 immigrants who landed in the last year doing so.
That compares with about three in 10 more established immigrants and one in four of people born in Canada.
This report by The Canadian Press was first published Nov. 8, 2024.
The Canadian Institute for Health Information says health-care spending in Canada is projected to reach a new high in 2024.
The annual report released Thursday says total health spending is expected to hit $372 billion, or $9,054 per Canadian.
CIHI’s national analysis predicts expenditures will rise by 5.7 per cent in 2024, compared to 4.5 per cent in 2023 and 1.7 per cent in 2022.
This year’s health spending is estimated to represent 12.4 per cent of Canada’s gross domestic product. Excluding two years of the pandemic, it would be the highest ratio in the country’s history.
While it’s not unusual for health expenditures to outpace economic growth, the report says this could be the case for the next several years due to Canada’s growing population and its aging demographic.
Canada’s per capita spending on health care in 2022 was among the highest in the world, but still less than countries such as the United States and Sweden.
The report notes that the Canadian dental and pharmacare plans could push health-care spending even further as more people who previously couldn’t afford these services start using them.
This report by The Canadian Press was first published Nov. 7, 2024.
Canadian Press health coverage receives support through a partnership with the Canadian Medical Association. CP is solely responsible for this content.
As Canadians wake up to news that Donald Trump will return to the White House, the president-elect’s protectionist stance is casting a spotlight on what effect his second term will have on Canada-U.S. economic ties.
Some Canadian business leaders have expressed worry over Trump’s promise to introduce a universal 10 per cent tariff on all American imports.
A Canadian Chamber of Commerce report released last month suggested those tariffs would shrink the Canadian economy, resulting in around $30 billion per year in economic costs.
More than 77 per cent of Canadian exports go to the U.S.
Canada’s manufacturing sector faces the biggest risk should Trump push forward on imposing broad tariffs, said Canadian Manufacturers and Exporters president and CEO Dennis Darby. He said the sector is the “most trade-exposed” within Canada.
“It’s in the U.S.’s best interest, it’s in our best interest, but most importantly for consumers across North America, that we’re able to trade goods, materials, ingredients, as we have under the trade agreements,” Darby said in an interview.
“It’s a more complex or complicated outcome than it would have been with the Democrats, but we’ve had to deal with this before and we’re going to do our best to deal with it again.”
American economists have also warned Trump’s plan could cause inflation and possibly a recession, which could have ripple effects in Canada.
It’s consumers who will ultimately feel the burden of any inflationary effect caused by broad tariffs, said Darby.
“A tariff tends to raise costs, and it ultimately raises prices, so that’s something that we have to be prepared for,” he said.
“It could tilt production mandates. A tariff makes goods more expensive, but on the same token, it also will make inputs for the U.S. more expensive.”
A report last month by TD economist Marc Ercolao said research shows a full-scale implementation of Trump’s tariff plan could lead to a near-five per cent reduction in Canadian export volumes to the U.S. by early-2027, relative to current baseline forecasts.
Retaliation by Canada would also increase costs for domestic producers, and push import volumes lower in the process.
“Slowing import activity mitigates some of the negative net trade impact on total GDP enough to avoid a technical recession, but still produces a period of extended stagnation through 2025 and 2026,” Ercolao said.
Since the Canada-United States-Mexico Agreement came into effect in 2020, trade between Canada and the U.S. has surged by 46 per cent, according to the Toronto Region Board of Trade.
With that deal is up for review in 2026, Canadian Chamber of Commerce president and CEO Candace Laing said the Canadian government “must collaborate effectively with the Trump administration to preserve and strengthen our bilateral economic partnership.”
“With an impressive $3.6 billion in daily trade, Canada and the United States are each other’s closest international partners. The secure and efficient flow of goods and people across our border … remains essential for the economies of both countries,” she said in a statement.
“By resisting tariffs and trade barriers that will only raise prices and hurt consumers in both countries, Canada and the United States can strengthen resilient cross-border supply chains that enhance our shared economic security.”
This report by The Canadian Press was first published Nov. 6, 2024.
