Small business optimism drops: CFIB

Uncertain economic conditions caused owners to postpone investment decisions on vehicles, equipment and real estate.

Small business confidence took a significant hit in August as owners digested a string of bad news about world economy in the first half of the month. The Canadian Federation of Independent Business (CFIB)’s Business Barometer Index dropped to 61.7 last month from its July level of 68.3—the lowest reading since July 2009.

“These results are not altogether unsurprising,” commented Ted Mallett, vice-president and chief economist for CFIB. “The raucous debt ceiling debate in the US and turmoil that followed in equity markets worldwide rightly caused business owners to pay attention to their own planning. But of note, although confidence suffered, owners’ views of actual current business conditions held up reasonably well.”

Measured on a scale between 0 and 100, an index level above 50 means owners expecting their businesses’ performance to be stronger in the next year outnumber those expecting weaker performance. According to past results, index levels normally range between 65 and 75 when the economy is growing.

The largest index declines provincially speaking were in Ontario and Quebec, dropping eight points and five points respectively to near the 60 mark. Alberta businesses remain the country’s most optimistic, with an index score of 75, Saskatchewan follows at 69.1, while British Columbia, Manitoba and Newfoundland and Labrador are clustered around the 65 level.

The balance of opinion on how businesses are now doing compared to three months ago is still trending upward. Although the perspective on the next three months fell somewhat, it is still positive and in line with survey results this time last year, stated a media release.

Indications of the current state of business operations, such as new orders, unsold inventories and use of staff overtime all regressed in August, but mainly correcting for what had been a very strong July. Furthermore, business optimism remains well above what was experienced during the 2009 recession and through its early stages of recovery.

“The drop in confidence is having a predictable impact on capital spending intentions, as more business owners decide to postpone investment decisions on vehicles, equipment and real estate,” said Mallet. “However, spending of this type generally has short lead-times compared to capital investment in larger enterprises, so it would respond positively and quickly in the event of signs of greater economic stability.”

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