Economics

September 5, 2012

Business Barometer
August 2012 Results of SME Business Outlook Survey
Ted Mallett, Vice-President & Chief Economist

Canadas small business optimism continued its gradual glide downward in August. CFIB Business Barometer findings showed the index falling to 60.0 for the month, its fifth-consecutive monthly decline. To put that level in perspective, although down almost eight points from its 2012 high point in March, it remains more than 20 points above the recessionary low of 39.9 in December 2008. Even so, the survey results point to only very slow growth in the national economy. CFIB Business Barometer Index and GDP
Index (0-100)* 85 80 75 70 65 60 55 50 45 40 35 30 Quarterly | Monthly Real GDP-%ch-SAAR 12 8 4

60.0 0 GDP
-4 -8 -12 -16 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012

*e.g. Index of 50 = equal balance of stronger and weaker business expectations

Measured on a scale between 0 and 100, an index level above 50 means owners expecting their business performance to be stronger in the next year outnumber those expecting weaker performance. One normally sees an index level of between 65 and 70 when the economy is growing at its potential.

www.cfib.ca

Business Barometer

Business Barometer Provinces

Index levels fell in most provinces in August, but the national pattern showed little change, bar two exceptions. Optimism rose smartly in Newfoundland and Labrador to an index level of 68.3, putting businesses there back in the nations top three regions. Quebec was the only other province to see a rise in its index (to 61.6). Business optimism in PEI (46.3), New Brunswick (60.5), Manitoba (58.1) and British Columbia (56.4) fell the most from July levels, while smaller declines were noted in Ontario (58.4), Saskatchewan (69.5) and Alberta (67.9). The index saw little change in Nova Scotia (54.4).

Newfoundland & Lab Prince Edward Is. Nova Scotia New Brunswick Quebec Ontario Manitoba Saskatchewan Alberta British Columbia

6 8 .3 46 .3 54 .4 60 .5 61 .6 5 8 .4 58 .1 69 .5 6 7 .9 5 6 .4

Business Barometer - Industries

Tellingly, optimism in the natural resources sector is now below the industrial average. The construction sector is also less optimistic than in past months. The retail and hospitality sectors are running just below average in the mid-58s, suggesting continued caution on the part of consumers. Above-average optimism is concentrated in the services sectors as well as manufacturing and wholesale.

Agriculture Natural resources Construction Manufacturing Wholesale Retail Transportation Arts, recreation, info. Finance, insur. realty Prof. and Enterprise ser. Health & education serv. Hospitality Personal services

5 3 .7 5 7 .8 5 4 .9 6 2 .8 6 2 .3 5 8 .6 5 2 .8 7 0 .0 6 2 .5 6 3 .7 6 3 .5 5 8 .6 5 3 .6

Short-term Business Performance

Short-term business performance expectations in August are almost identical to July findings, and not far off their historical seasonal norms. Thirtythree per cent of business owners expect their businesses to strengthen in the next three or four months, compared to roughly 18 per cent who expect a weakeninga balance of opinion of 15 per cent on the plus side. Balance-of-opinion views on business performance in the recent past are still running at levels consistent with the past two years.

40 Improve - worsen, 30 % balance of

opinion

20 10 0 -10 -20 -30 2009 2010 2011

Next 3 or 4 months

Past 3 or 4 months

2012

Full-time employment plans, next 3 or 4 months

Hiring plans continue to be the bright spot in the survey results. Eighteen per cent of business owners plan to hire full time staff in the next three or four months, compared to 12 per cent who plan to cut back. Although not as upbeat an assessment as in the spring, it is nonetheless a strong reading for this time of year.

25 20 15 10 5 0

% response

Up

Down

2009

2010

2011

2012

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Leading Indicators
Among the key business operating conditions covered in the survey, unfilled orders, accounts receivables and use of overtime show general stability when viewed over the year.

-10

% balance of opinion: better (worse) than normal

-20

-30 2009 2010 2011

Unfilled customer orders Staff overtime Unpaid accounts receivable 2012

Capital Spending Plans, Next 3-4 Months

Capital spending profiles showed little change in August. Spending plans on processing machinery and vehicles held steady or dropped, while spending plans for office technology and property rose.

40 % response 30 20 10 0 2009 2010 Vehicles Process machinery, equipment Land, buildings, renovations 2011 2012 Computers, comm., office tech

Overall State of Business

Overall, 41 per cent of business owners describe their state of business to be in good shape about three-times the 12 per cent who say it is in bad shape. Month to month, this profile has proven to be extremely stable through the business cycle.
Good, 41

Ba d, 12 S a tisfactory, 48
% response

Main Business Constraints

Customer demand continues to be the most commonly cited constraint on business performance (37 per cent), along with shortages of suitably skilled labour (also 37 per cent). Management skills and time constraints were cited by 29 per cent of respondents.
*revised tabulation method. Historical data available on request

Insufficient domestic demand Insufficient foreign demand Foreign competition Shortage of skilled labour Shortage of un/semi-skilled labour Management skills, time constraints Shortage of working capital Shortage of input products Product distribution constraints Limited space
4 9 14 22 16 29 8 15

37

37

% response

Main Business Constraints: trends

Concerns about customer demand levels have been gradually trending down in 2012. At the same time, concerns over shortages of working capital appear to be steady. After increasing through the past few years and then stabilizing, concerns about shortages of qualified labour are showing a renewed increase in the past couple of months.

60 % response 50 40 30 20 10 2009 2010 2011 Insufficient domestic demand Shortage of skilled labour Shortage of working capital 2012

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Major Cost Concerns

Cited by 61 per cent of respondents, fuel and energy costs are seen as the most problematic business input costs, given their variability. Taxes and the cost of complying with regulations are a problem for 60 per cent of business owners, while wage levels, banking fees and insurance costs are pain points for almost one business in two.
*revised tabulation method. Historical data available on request

Fuel, energy Wages Borrowing costs Banking Foreign currencies Product inputs Capital equipment, technology Occupancy Insurance Taxes, regulations
19 47 8 24 21 18 43 48

61

% response

60

Wages and Prices, Next 12 Months

Inflationary pressures have remained fairly stable in August compared to earlier in the year. On average, business owners expect to increase both wage and price levels by an average of 1.6 per cent the next 12 months.

2.5 % change Avg price plans 2.0 1.5 1.0 0.5 2009 2010 2011 2012

Avg wage plans

Amount of credit needs currently being met

Fifty-five per cent of current or prospective borrowers say they have access to all the credit they need to run their businesses, while another 24 per cent say they have access to most. About one business in five, however, continues to have significant difficulties in finding necessary credit.
None, 3 S ome, 18

All, 55

M ost, 24
% response

August 2012 findings are based on 903 responses, collected from a stratified random sample of CFIB members, to a controlled-access web survey. Findings are statistically accurate to +/- 3.3 per cent 19 times in 20.

Notes: To compensate for small monthly sample sizes, the index calculations for some subcategories are based on monthly moving averages. The data are not seasonally adjusted. Business Barometer is a registered trademark