Quarterly Business Barometer “playing it safe” – CFIB

December 19, 2007 – Toronto – Small businesses are feeling cautious in light of the high dollar, oil prices and volatility in the financial markets, the latest survey of business optimism by the Canadian Federation of Independent Business shows. Overall business optimism is at its second-lowest level since 2001 and retail performance is virtually flat this holiday season.

Nationally, CFIB�s quarterly Business Barometer is at 104.2, down from 108.4 in September, although optimism remains strong in several provinces. �Canadian small and mid-sized businesses seem to be playing it safe right now,� CFIB�s Chief Economist Ted Mallett says. �Hiring and investment plans have been scaled back slightly, although they are still growing, and overall enthusiasm about the future has dampened.�

The provincial picture

This quarter saw declines in business optimism in Alberta, Manitoba, Ontario, Nova Scotia and British Columbia, although BC remains well above the national average. The most optimistic province is Saskatchewan at 115.2, down slightly compared to September. New Brunswick and Newfoundland and Labrador, where businesses are fairly upbeat, saw little change. Quebec and PEI continue to hover at or somewhat below the national average.

By sector

Eight out of ten industry groupings in the survey saw a decline, the largest being in transportation. �That�s probably not a surprise,� Mallett says, �given fuel prices, a drop in shipments and clogged border crossings.� Businesses in the agriculture, retail and wholesale industries are also less optimistic than the overall average.

Business expectations in the construction and manufacturing sectors are in the 104-105 range. �Given the issues manufacturers have had with the dollar, it�s a good sign that the index is as strong as it is,� Mallett says. The hospitality sector is also doing well with an index of 110, despite lower travel demand from the US. As usual, the financial and business services sector is well ahead of the rest of the economy with industries in this grouping showing index levels of 113 or higher.

Retail performance is looking mediocre this holiday season, compared to historical averages. About seven per cent of retailers report much stronger performance than last year but just as many say things are much worse. Roughly a third of retailers say business is somewhat better and a quarter say it�s somewhat worse. The remaining 27 per cent have seen no significant change compared to last year.

The Canadian dollar

For first time since the Canadian dollar started its long rise, SME owners are displaying strong opinions. In previous surveys, preferences for a lower dollar had only slightly out measured preferences for a continued rise. With the Canadian dollar hitting the US$1.10 mark in November, before settling to near parity, fully 38 per cent of respondents would like to see the dollar fall further, while 17 per cent would like to see a higher value.

Employment, wage and pricing plans

Employment expectations remain reasonably upbeat. Approximately 31 per cent of business owners hope to have greater numbers of full-time staff 12 months from now�slightly more than the 30 per cent who expected an increase in June. Businesses in Alberta, British Columbia, Saskatchewan, Manitoba, New Brunswick and Newfoundland and Labrador are the most likely to have plans for increased full-time staff levels.

In sharp contrast to earlier findings, however, there appears to be significantly lower price and wage pressure in the SME economy. 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�the lowest level in more than a year. Similarly, only 28 per cent are expecting their prices to increase in excess of two per cent � the lowest proportion since early 2005.

Volatility in financial markets, worldwide oil markets and Canadian currency markets have persisted and have ultimately dampened the outlook for small and mid-sized businesses this month. Not surprisingly, the goods-producing sectors and businesses in Central Canada are the most tentative.

�It remains to be seen if conditions in the US economy worsen in the next few months and if so, to what degree the effects will be felt in Canada,� Mallett says. �Playing it safe appears to be the strategy Canadian small businesses are taking.�

The survey was conducted via fax and e-mail Nov.21 to Dec. 5, 2007 and drew 1,751 responses. It is accurate �2.4 per cent 19 times out of 20. The full report and provincial details are available at www.cfib.ca

For more information, contact Judy Langford or Gisele Lumsden at 416-222-8022.

CFIB is Canada�s largest association of small- and medium-sized businesses. Encouraging the development of good public policy at the federal, provincial and municipal levels, CFIB represents more than 105,000 business owners, who collectively employ 1.25 million Canadians and account for $75 billion in GDP. www.cfib.ca

Business Barometer is a quarterly publication of the Canadian Federation of Independent Business and is a registered trademark.