Small business outlook holds firm

Toronto – Small businesses are maintaining a cautious outlook in light of uncertainty in financial markets, energy markets and concerns about the faltering US economy, the latest survey of business optimism by the Canadian Federation of Independent Business shows. Latest expectations push the Business Barometer index down only slightly from the previous quarter, but still well below past norms.

“Although lower than most other quarterly results in the past few years, the findings are still far from plumbing the depth of pessimism,” CFIB’s Chief Economist Ted Mallett says. “Nationally, CFIB’s quarterly Business Barometer is at 104.0, down from 104.2 in December, and optimism remains strong in several provinces.”

The provincial picture

This quarter saw declines in business optimism in Alberta, British Columbia, Ontario, Quebec and Prince Edward Island. Alberta’s index hit a five-year low of 102.8. Businesses in Prince Edward Island fell below the 100 mark for the second time in the past three quarters. Manitoba remains steady at 103.6.

Newfoundland and Labrador businesses are the most optimistic, with their index rising for the fourth consecutive quarter to 119.6, with businesses in Saskatchewan at a close second at 116.1. Business owners in Nova Scotia and New Brunswick have slightly stronger outlooks than those in the rest of the country.

By sector

Seven out of ten industry groupings in the survey saw a decline, the largest being in manufacturing with the index down to 100.0. Wholesalers are experiencing a similar decline with an index level of 102.2. Once again the agriculture index has dropped to mid-90 levels, with livestock, cattle and horse sectors facing high fuel costs, high feed costs and high input costs. The most pessimistic businesses for the second consecutive quarter are transportation companies, which are facing higher fuel prices, concerns of lower shipments and continuing border issues.

The consumer-focused hospitality and retail sectors continue to hold their own, performing reasonably well. And, the financial and social services sectors, which traditionally show the highest levels of business optimism, are once again at the top of the list.

The Canadian dollar

Now that Canadian businesses have lived with dollar parity for the past six months, more are sharing the strain. Export-oriented manufacturers and transport companies, in particular, are hit doubly by poor exchange rates and slow market demand south of the border

Employment, wage and pricing plans

Employment expectations remain reasonably upbeat. Approximately 30 per cent of business owners hope to have greater numbers of full-time staff 12 months from now—down one per cent from December. Unfortunately, the numbers expecting to have fewer full-time staff also increased another percentage point this quarter.

Businesses in Newfoundland and Labrador, New Brunswick, Saskatchewan and Manitoba are the most likely to have plans for increased full-time staff levels. Businesses in Alberta and British Columbia have cooled their hiring plans considerably—from 37 per cent and 41 per cent respectively in December, to 33 per cent in March.

Salary pressures, however, seem to be easing a little faster. Consistent with previous December findings, only 37 per cent of business owners are expecting to have to raise wages by more than two per cent in the next 12 months—well below levels from mid-2007.

“Across the board, concerns remain largely the same—energy prices, the US economy and the exchange rate,” Mallett says. “But, although slowing, Canada’s small business economy does not appear to be following the same extreme path as the US.”

The survey was conducted via fax and e-mail from March 3-17, 2008 and drew 2,048 responses. It is accurate ±2.2