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Industry & Economic News

Small business 101 with CFIB
Business Barometer: Stock market bears not yet on Main Street

According to findings from the latest survey by the Canadian Federation of Independent Business (CFIB), overall expectations among the owners of Canada’s small- and mid-sized enterprises (SMEs) are slightly more optimistic than they were three months ago. Nationally, latest expectations push the September Business Barometer index up to 101.8 from its previous cyclical low of 100.7 in June.

The provincial picture
In this quarter, regional findings show mixed results, but the fundamental areas of strength and weakness remain fairly consistent.

By sector
The profile of optimism by industry sector has regained some of the broad consistency lost earlier this year. Many of the weaker sectors hit hard by fuel prices, such as transportation and hospitality, have rebounded strongly, with the transportation index at 98.1, the highest level in a year. The hospitality index is at 100.9, still a little below the national average, but its increase suggests that the summer 2008 tourist season did not fare badly as feared.

The biggest negative news, however, is optimism in the manufacturing sector, which continues to fall—with the index dropping almost two points to 98.0 in September from 99.9 in June. The U.S. slowdown in general and more specifically its effect on automotive purchases and household big ticket items has kept the chill on this sector. The construction sector index has stayed more or less where it was in June, but remains well below historical norms—suggesting weaker conditions in consumer real estate. The service sector, traditionally the economy’s fastest growing and most resilient, has taken a few hits—not surprisingly in its financial and professional services segments.

On the positive side, the indexes for retail at 102.2, wholesale at 99.5 and agriculture at 96.9 have all risen by a few points, likely driven by relief on the cost of energy inputs and a belief that the consumer is still spending.

The Canadian Dollar
It has been about a year since the Canadian dollar re-achieved parity with the U.S. dollar and time has allowed businesses to adjust to new cost structures. There has been a slight pull-back to the $0.93-0.97 which has eased pressures on some export-dependent businesses. Thirty per cent of business owners would like the Dollar to fall further, while almost as many—27 per cent would like to see it rise again.

Employment, wages and pricing plans
Employment expectations remain solid, despite concerns about business prospects. In September, about 28 per cent of business owners hope to have greater numbers of full-time staff in the next year, versus 11 per cent who expect to reduce their staff count.

The results by province do not differ markedly, but those in Alberta and Saskatchewan are the most likely to plan for employment increases, while those in Ontario and Nova Scotia are the most likely to plan for employment reductions.
 
A look at wage costs and pricing decisions points to a slight easing of inflationary pressures in the economy. About 40 per cent of business owners expect to increase their prices by more than 2 percentage points in the next year—down from 44 per cent who had said they would do so in June. Salary expectations seem to be following the same pattern with about 41 per cent of business owners expecting to have to raise wages by more than two per cent in the next 12 months—well below levels from mid-2007.

With turbulence in the U.S. financial markets washing into Canada, it is no surprise that people are looking for what effect these developments are having on Main Street. This latest index clearly shows that, while the small business economy is not immune from U.S. mortgage securities contagions, Canada’s SME sector is holding up quite well so far. The collapse of high profile Wall Street investment banks has not yet been factored into business owners’ perspectives. The survey was conducted in the two weeks immediately preceding those events when financial volatility was nonetheless very high.

The full report and provincial details are available at www.cfib.ca

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

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