CFIB: Quarterly Business Barometer – Small business confidence drops as temperature rises

Toronto – June 27, 2007 – The latest Business Barometer by the Canadian Federation of Independent Business (CFIB) shows the index has fallen to 107.3 in June, from 108.7 in March, back to levels displayed for most of 2006. “The June index level corresponds roughly with 2 to 3 per cent growth in the economy—still a respectable and sustainable rate of change, but it’s a complicated picture. The economy is split along regional lines—west versus east—and sectoral lines—services versus goods, presenting significant challenges to the central bank and government policy makers,” CFIB’s chief economist, Ted Mallett said.

Overall, about 40 per cent of owners say their firms are doing much better or somewhat better than one year ago, while 24 per cent say they are doing somewhat or much worse. At the same time, about 42 per cent of respondents expect stronger performance during the next three months. The longer-term expectations for the next 12 months are the most positive, with 49 per cent of respondents expecting stronger performance.

Looking across the country, Mallett said businesses in British Columbia and Alberta continue to be the most optimistic, and the index for both Manitoba and Saskatchewan are up for the second quarter this year. Business owners in the rest of the country, however, paint a somewhat different picture. Although not bleak, the economic environment in Ontario and eastward is not up to previous norms, dropping three points from its March level to 104.3. Quebec businesses are somewhat more optimistic, at 105.8, while those in New Brunswick lead the region at 108.8. The index in Newfoundland and Labrador increased to 104.2. Businesses in Nova Scotia are not nearly as optimistic. Their index dropped a full seven points in the quarter to 103.2, while that of Prince Edward Island dropped to near the baseline level of 100.

Mallett also noted that the index’s sector detail reveal pretty sharp contrasts. On the downside, business owners in the agriculture sector are showing some surprising pessimism. Although commodity prices are high, it appears that the high dollar and input prices are keeping a lid on future performance expectations. For the same reasons, expectations among manufacturing and transportation-related business owners are considerably lower than those of the rest of the economy.

When asked about factors affecting their businesses, Mallett said business owners report customer demand is improving, on balance. On the other side of the coin, however, is the concern over energy prices. More than 80 per cent of owners say that these price shifts have caused problems for their businesses, versus only two per cent who have been able to capitalize on them. Many other businesses have reported various factors that continue to present challenges, including: input prices, insurance, labour availability, wage demands, interest rates and general competition. Border issues remain significant for those that conduct business in the US.

Employment expectations remain reasonably upbeat, according to Mallett, with almost 30 per cent of business owners expected to increase full-time employment in the next 12 months—slightly lower than the 32 per cent in March 2007.

“While the economy as a whole appears to be growing at a modest pace, the more pronounced east/west and goods/services extremes are of concern,” Mallett concluded. “The high dollar is pinching agri-businesses and manufacturers, disrupting their ability to contribute to economic growth. On the positive side, generally healthy employment markets continue to add to jobs and wages, keeping consumer wallets full.”

About CFIB

Since 1971 the Canadian Federation of Independent Business (CFIB) has been giving small firms a big voice in the public arena. Best known for high-profile actions with governments on policies like tax, labour laws and public sector spending, we have also achieved many behind-the-scenes changes that have meant real dollars-and-cents benefits to all firms.