Consumer bankruptcies in Canada continue to rise sharply, but in a trend that’s baffling economists in the current recession, bankruptcies among businesses are declining.

In March, the Office of the Superintendent of Bankruptcy Canada reported that 35,543 people filed for bankruptcy in the first three months of 2009, a jump of 35.9% from the same period a year earlier. In the same period, bankruptcy filings by businesses actually fell by 11.2% to 1,796, compared with the January to March period in 2008.

All industry sectors saw their bankruptcy situation improve, with the exception of business services, wholesale trade and manufacturing, each of which experienced minimal increases. By region, bankruptcies in Alberta and Quebec are on the rise, but other regions are seeing double-digit declines.

The retreat in corporate bankruptcies defies the prevailing trends of past economic downturns, according to a report by CIBC World Markets.

“This trajectory is completely inconsistent with both the experience seen in any other recession and the current situation in the U.S., where business bankruptcies are rising at a rate not seen since 1975,” said Benjamin Tal, CIBC senior economist and author of the report.

According to CIBC, business bankruptcies rose sharply in both the 1982 and 1991 recessions, approaching 50% year-over-year growth rates. Historical data also shows that personal and business bankruptcies tend to be positively correlated, which makes the current trend unusual, Tal noted.

Bankruptcy levels in Canada are also displaying divergence from those in the U.S., where business bankruptcies are rising by 40% on a year-over-year basis.

The numbers indicate that many Canadian firms are responding to the recession by rationing and downsizing as opposed to outright plant closures, according to Tal. This could mean a swift recovery for the job market, since re-hiring by downsized companies can occur much faster than hiring by new firms, the report says.

“If sustained, this response will have significant implications for the nature and speed of the recovery in the job market,” said Tal. “This time around we may not have to wait for business bankruptcies to recover before we see employment rising again.”

CIBC World Markets expects a recovery of the labour market to take place in 2010.

IE