Optimism builds among small business owners: CFIB

Barometer edges up in February, building on a 1.7 point gain in January

TORONTO — Small business owners are showing a little more optimism in February as the Canadian Federation of Independent Business (CFIB) Business Barometer Index rose 0.4 points to 64.4, expanding on a 1.7 point gain in January.

The index is now running about half a point better than its average for 2013.

Business owners in BC (71.4), Alberta (70.6) and Newfoundland & Labrador (67.2) are the most optimistic. Improvements were seen in Quebec (59.6) and PEI (61.0), though their index levels remain below the national average.

Index scores fell in Ontario (62.9) and Manitoba (58.7). CFIB says optimism in Saskatchewan (63.6), Nova Scotia (57.6) and New Brunswick (56.6) was virtually unchanged.

Ted Mallett, vice-president and CFIB’s chief economist says sector profiles remain pretty tightly grouped around the overall average, with those in the information sector, professional services and manufacturing at the top.

Manufacturing showed a confidence rating of 66.4, up from 63.9 in January and just shy of the 67 recorded a year ago.

He says in his report that short-term hiring expectations are running reasonably well for this time of year, with 25% expecting to add full-timers in the next three to four months, versus only 6% who expect to cut back.

The 60% who expect to make capital investments in the short-term also matches a post recession high. Average pricing increases have shot up above 2% as importers have had to react to recent sharp declines in the Canadian dollar.

TD Economics analyst Sonny Scarfone doesn’t see the results of the February index as entirely positive.

“Only three provinces were more confident, among which were Alberta and Québec who are rebounding from recent lows rather than scoring new highs. The recent convergence in provinces’ confidence, however, coincides with our view that we should see less disparity for growth between resource-oriented provinces and the traditionally more manufacturing-oriented ones in 2014-15,” he said in a bulletin.

Scarfone also noted concerns over the persistently low pace of inflation in Canada since the summer of 2012. TD Economics has stated that the Canadian dollar’s depreciation would contribute to bring inflation back to the central bank’s 2% target (see report).

He said small business owners have started to respond in kind and on average expect prices to increase by 2.1% over the next year, as importers react to increased input costs. This was the first time since May 2011 that the average expected inflation from small business owners was at or above 2%.

Nevertheless, he observes the positive momentum from late 2013 continues and bodes well for real GDP growth from 1.7% in 2013 to 2.3% in 2014.

An index score above 50 means owners expecting business performance to be stronger in the next year out number those expecting it to be weaker.

An index level of between 65 and 70 indicates the economy is growing at its potential.

Click here for a copy of the report.