Opinion: Small businesses that don’t pay rent are canaries in the coal mine for the North American economy

On the surface, it seems like an insignificant statistic in a sea of ​​big economic news: The number of small businesses in the US and Canada that failed to pay their rent in full and on time in October saw a big jump.

Of all the canaries in the coal mines, however, this seemingly minor development—and the trends it spawns—are the most critical to watch as the North American economy sinks toward recession while bearing the heaviest inflation in four decades.

With small businesses accounting for two-thirds of new jobs, the knock-on effect of this shortfall and the underlying causes are harbingers of tough times ahead. And in the U.S., such prospects will have a big impact on voters heading into midterm elections on Tuesday — with many pollsters predicting a sharp shift to the right in a more business-friendly Republican-controlled Congress.

According to a survey of more than 4,700 small businesses released this week by Boston’s Alignable Research Center, 37 percent of U.S. small businesses went bankrupt last month, up seven percentage points from September, when defaults were the lowest in six months. . Small businesses in Massachusetts, New Jersey, New York and California — all Democratic-led states — saw the worst of it.

The situation was more acute in Canada, where 42 percent of small businesses couldn’t make ends meet in October, which is slightly higher than the previous month, according to the survey. The hardest hit are small businesses in British Columbia, Ontario and Alberta.

While the numbers may be slightly different between countries, the reasons are largely the same: “The cumulative negative impact of more than a year of high inflation, which has absorbed most of the capital gains,” said Alignment network researchers. more than seven million small business members in communities across North America.

The details are well-documented: rents have risen in more than half of small businesses, gas prices are higher, supply chain costs have risen, labor costs are skyrocketing, there is a widespread shortage of workers, and consumption is slowing—all against the background of growing fears of a recession.

Consumer spending had a particularly strong impact on the deficit. Almost 60 percent of the entrepreneurs who responded to the survey noticed a significant decrease from the previous month.

In many areas of the US, the crime rate was much higher than the 37 percent average. At trainers, car dealers, restaurants and retailers, the prices were well over 40 percent. Particularly hard hit were the automotive industry and restaurants, whose violations in 2022 were the highest, 49 percent.

Car dealers were hurt by the sharply rising interest rates, as big-ticket items are often bought on credit. In the U.S., interest rate hikes by the Federal Reserve pushed new-car finance rates to 5.7 percent in the third quarter, up from 4.3 percent a year ago and the highest level in three years, according to Edmunds analysts. In Canada, the average car loan interest rate is 6.6 percent, according to WOWA.ca.

Almost half of the restaurants surveyed – 49 percent – ​​could not pay their rent in October, down 13 percentage points. About 43 percent of retailers default on their payments, which is 12 percentage points more.

Real estate and homebuilders also took a hit as U.S. mortgage rates fell 7 percentage points, cooling a hot real estate market and slowing construction.

As the holiday season approaches, there is optimism that consumption will recover, at least temporarily. And many U.S. voters, including staunch Democrats, have told pollsters they rate inflation and economic worries so high that they’re ditching their party allegiances and voting Republican, hoping a red tide will improve things.

Red tide or not, with costs and interest rates rising, the job market shrinking and consumers dipping into their savings more than ever just to make ends meet, the chances of a small business saving the Canary Islands are slim. At best, it will remain life support in the near future.