Business Barometer: High energy costs and economic uncertainty fuels decline in business optimism – CFIB

June 25, 2008 – Toronto � Expectations among Canada�s small- and mid-sized enterprises (SMEs) took a sharp tumble in June, according to the latest survey of business optimism by the Canadian Federation of Independent Business. Latest expectations push the Business Barometer index down for the third consecutive quarter, to its lowest level since third quarter 2001.

�The sharp run-up on fuel prices, coupled with continued weakness in the US export markets have taken their toll on business optimism,� said CFIB�s Chief Economist Ted Mallett, adding, �the weakness is most pronounced among businesses exporting to the US and those with larger payrolls.� Nationally, the Business Barometer stands at 100.7, well down from 104.0 released in March and 104.2 released in December, 2007.

The provincial picture

This quarter finds weakening expectations in virtually every province. The only major improvement was found in Alberta, where the index rose to 106.3 in June from 102.8 in March.

Continuing the profile found last March, owners in Saskatchewan and Newfoundland and Labrador businesses remain the nation�s most optimistic with index levels both at 110.3, although well under March�s findings. Businesses in British Columbia and New Brunswick also paired up above the national average with a 105.2 index level. Manitoba businesses were not far behind at 103.0 � only slightly below the March level.

There was a slight drop in optimism in Quebec with an index level of 100.2 compared to 101.6 in March. The decline was considerably greater in Ontario and Nova Scotia, where their indexes dipped significantly to 96.9 and 93.3 respectively. The index was in similar territory in Prince Edward Island, at 97.3, close to its March level.

By sector

The profile of optimism by industry sector has remained more or less consistent � with higher levels in the services sector and lower levels in goods producing industries. Index scores among agricultural business (94.1), transport companies (91.2) and manufacturers (99.9) remained weak in June, but not far from what they reported in March. Optimism fell a few points among wholesalers and retailers, to 98.4 and 100.7 respectively, while index scores among business-related and financial services remained steady near the 106 level.

The biggest negative news, however, came from the construction and hospitality sectors. The previously robust construction index dropped more than eight points to 98.7 in June, suggesting that economic uncertainty is encouraging businesses and consumers to begin holding off on major real estate outlays. For the hospitality sector, which includes restaurants and accommodation providers, the index went into freefall by more than 11 points, from 107.4 to 96.2. Food price uncertainty, coupled with concerns that people will be travelling considerably less during the peak tourist season this year because of fuel prices, are slamming the sector from both directions.

The Canadian dollar

Concerns about the level of the dollar eased only somewhat during the past three months. Thirty-two per cent of business owners would like to see a lower dollar, while 18 per cent would like to see it appreciate versus its US counterpart. Export-oriented farmers, manufacturers and transport companies, in particular, are hit doubly by poor exchange impacts and slow market demand south of the border.

Employment, wages and pricing plans

Employment expectations still remain positive. About a quarter of business owners hope to have greater numbers of full-time staff 12 months from now � significantly lower, however, than the 30 per cent who expected an increase in March. Unfortunately, the numbers expecting to have fewer full-time staff also increased another two percentage points to 10 per cent.

Businesses in Alberta, Newfoundland and Labrador, New Brunswick and British Columbia are the most likely to have plans for increased full-time staff levels. Businesses in Ontario, Manitoba and Quebec show the weakest staffing plans.

Adding a significant weight on business expectations in June, fuel price pressures are spreading throughout the production chain and inflationary pressures are building. Forty-four per cent of business owners are expecting to increase their prices in excess of two per cent � a 10-point increase from three months ago.

The survey was conducted via fax and e-mail between June 2 and 13, 2008 and drew 1,874 responses. It is accurate �2.3 per cent 19 times out of 20. The full report and provincial details are available at

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.

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