TD Economics: Small Businesses Will Reclaim the Driver’s Seat Behind the Economic Engine

Cherry Hill, New Jersey and Portland, Maine (PRESS RELEASE – May 22, 2011) – The next few years will mark a new phase for the U.S. economy, characterized by accelerated job growth and increased opportunities for small and medium sized enterprises (SMEs), particularly in international trade. This is according to a new report released today by TD Economics, an affiliate of TD Bank, America’s Most Convenient Bank.

The American economy relies heavily on small and medium sized businesses. The sluggish economic recovery is partly attributed to the fact that SMEs have been hit on two critical fronts. One, they were highly concentrated in the hardest hit industries of the recession. And, two, tight credit conditions have been made worse with collateral tied to real estate. Of the two influences, the mix of industry concentration now seems to be the bigger, lingering issue holding back SMEs.

“Fortunately, the recovery is broadening out beyond the manufacturing sector and domestic demand is gaining strength. Opportunities for new firms to start up and take advantage of the economic recovery should continue to rise,” says TD Deputy Chief Economist Beata Caranci.

“In the second and third quarters of 2010, small and medium sized enterprises – businesses that employ fewer than 500 people – began to reinstate their status as a dominant hiring source, accounting for 60 percent or more of national net jobs gains,” says Caranci. “Although SME data at this disaggregated level is only available to the third quarter for 2010, there is reason to believe that small-sized firms were instrumental in driving the strong job gains seen over the February to April period in 2011. These firms have a high representation in the service sector where jobs accelerated sharply within the national non-farm monthly payroll figures.”

The TD Economists also predict that along with the increased opportunities that are materializing from current, domestic economic improvement, there is enormous potential for small and medium sized businesses to tap into foreign markets.

“Emerging-market economies already make up 50 percent of the world economy and, in the next decade, that share will rise to 60 percent,” says Caranci. “Given the increasingly diverse growth in world demand and the global competitiveness of the current American dollar, businesses adept enough to navigate products and services in an export market face a number of unique advantages over those focusing solely on the domestic market.”

This opportunity, the TD Economists say, will allow SMEs in the service trade industry – a key driver of exports – to expand sales and provide services such as accounting, advertising, consulting and legal advice.

Although entering the export market presents great potential for SMEs, there are some challenges in exploring foreign markets, such as obtaining financing, high tariffs and transportation and shipping costs. However, like many aspects of owning a business, practice will make perfect. As firms become more experienced in navigating foreign markets, and recruit the appropriate talent and services, they will become more successful at the business of exporting.

“Looking beyond the U.S. business cycle, the increasing global nature of economic growth should not be overlooked as businesses recover from the recession,” says Caranci. “Some are already gaining a foothold in high-growth countries in emerging markets such as Asia, and the potential to expand further is prodigious.”

About TD Economics

TD Economics provides analysis of global economic performance and forecasting, and is an affiliate of TD Bank, America’s Most Convenient Bank.

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