Some signs of optimism for small business sector: CFIB

With the country entering the much-anticipated spring season, there are some burgeoning signs of optimism in the small business sector, according to the Canadian Federation of Independent Business (CFIB)’s March Business Barometer®.

Ketut Subiyanto

Both indexes rose at levels close to the end of last summer. Long-term optimism improved in most sectors, and the gap between average wage and price plans has significantly closed in March.

Ksenia Bushmeneva, Economist, TD Economics, said small business confidence has recovered some ground at the start of the year, in line with improvement seen in other economic indicators, such as consumer spending, job growth, and consumer confidence.

“The uptick in confidence in recent months is welcome, but overall optimism is still relatively blunted compared to historical levels, with the longer-term index below its pre-pandemic average of 62.2. As for improvement in the near-term index, seasonal factors appear to be at least partially at play, with that component generally rising in the first quarter of the year,” she said.

“While some of the headwinds, such as supply chain backlogs and gasoline prices have been easing, others have intensified. A slower growth outlook for the Canadian and U.S. economies this year, combined with higher interest rates will likely weigh on businesses’ investment and expansion plans. The consumer is also likely to be put under increased financial stress over 2023, which will weigh on sales and margins, ultimately affecting business’ bottom lines.”

Here’s the CFIB report:

March 2023 Results

Canada’s small businesses have seen an improvement in their long-term confidence of 3.5 index points in March 2023, in tandem with a small pitch forward in short-term optimism.

CFIB’s Business Barometer® long-term index, which is based on 12-month forward expectations for business performance, gained over three points to reach 55.3. The short-term optimism index, based on a 3-month outlook, sits at 52.2, three points higher than the February level. Currently, both indexes rose at levels close to the end of last summer.

Most provinces have seen gains in long- and short-term optimism levels.
Over the long-term, British Columbia, Newfoundland and Labrador, and Nova Scotia have seen the most marked improvements (more than four points). PEI, Manitoba and Saskatchewan are leading with levels around 60; while Quebec and NB are at the bottom on the confidence scale, with levels shy of 50.

Over the short-term, confidence is ranging from mid-40s to low-50s, except in NB where the level is significantly lower at 37.9. This fairly tight spread shows very timid confidence for the beginning of the summer.

Long-term optimism improves in most sectors.
Most sectors have also seen improvements in optimism, but no significant movement in the rankings, except the finance and insurance sector which has dropped since February a considerable 11 points to 51.2. Most industries are seeing confidence levels between 50 to 60, which represent moderate optimism.  Three sectors see confidence above 60: health and education, recreation and information and professional services). Three sectors report indexes below 50 such as natural resources, agriculture, and retail.

General business indicators
Full-time staffing plans have seen the seasonal uptick in the share of businesses looking to hire (25%) similar to the same time in the previous year. Supply chain indicators remained constant in March.

Similarly to the previous months, borrowing costs and product input costs remain the top cost constraints with current levels about twice the historical average value. Sales or production growth is limited by labour shortages and input product shortages, these factors read well above the historical levels.

Price and wage plans
Average future price increasing plans saw a softening to 3.5; at the same time average wage increase plans decreased to 3.1. The gap between these two indicators has significantly closed in March—the current gap is the smallest since the beginning of the pandemic, yet still higher than the pre-pandemic average gap.

Factors limiting sales or production growth – current levels and trend, March 2023

Major input cost constraints – current levels and trend, March 2023

Methodology

March findings are based on 540 responses from a stratified random sample of CFIB members, to a controlled-access web survey. Data reflect responses received from March 2 to 14. Findings are statistically accurate to +/- 4.2 per cent 19 times in 20. Every new month, the entire series of indicators is recalculated for the previous month to include all survey responses received in that previous month. Measured on a scale between 0 and 100, an index above 50 means owners expecting their business’s performance to be stronger over the next three or 12 months outnumber those expecting weaker performance. An index level near 65 normally indicates that the economy is growing at its potential.

The next Business Barometer will be released on April 27, 2023.

Andreea Bourgeois, Director of Economics
Simon Gaudreault, Vice-President, Research and Chief Economist