Small business optimism dropped in B.C and Canada

Falling optimism grips small businesses

The Canadian Federation of Independent Business (CFIB) Barometer Survey revealed a significant drop in sentiment among Small and Medium-sized Enterprises (SMEs) in March, as U.S. tariff threats heightened concerns about Canada's future economic stability. The long-term 12-month confidence index decreased for the fourth month in a row, dropping by 24.8 points to 25.0 points. The short-term index also fell by 16.1 points to 31.2 points. The 12-month indicator is lower than levels observed during the 2020 pandemic, the 2008 financial crisis, and 9/11. The implementation of U.S. and Canadian retaliatory tariffs in March, along with plans for further measures, has led to widespread uncertainty, particularly affecting vulnerable sectors and businesses. For SMEs involved in importing, the index fell to 35.6 points from a recent peak of 60.9 points in November. Exporting SMEs experienced a similar, slightly larger decline from 63.1 points to 35.9 points. The hospitality and manufacturing sectors are the lowest based on the 12-month index, at 17.0 points and 18.6 points, respectively.

Among the provinces, the long-term index in B.C. dropped by 22.6 points, marking the third smallest decrease among the provinces, down to 26.5 points. Only New Brunswick and Newfoundland and Labrador experienced smaller declines. The short-term index decreased by 7.5 points to 34.4 points, which was the second smallest drop after New Brunswick. With a current value of 26.5 for the long-term index and 34.4 for the short-term index, B.C. is positioned in the middle compared to other provinces, although its overall performance remains poor. However, B.C.'s export market is somewhat insulated from U.S. tariffs due to lower trade exposure to the U.S., as the U.S. accounts for about 52 percent of B.C.'s international goods exports, compared to 75 percent nationally.

Businesses in B.C. frequently cite insufficient demand and a lack of skilled labor as major obstacles to increasing sales or production. Additionally, limited working capital and physical space have constrained sales growth. The primary input cost challenges include tax/regulatory costs, insurance, and wage expenses, with fuel, occupancy, and product input costs also featuring on this list. Plans for full-time staffing have slightly decreased, with a minor reduction in the number of respondents intending to hire more staff, while the proportion planning to lay off staff remained the same.

The overall business health reported by most SMEs in Canada remained "satisfactory," similar to the previous month. However, more businesses identified insufficient demand as the primary constraint on sales growth compared to the previous month (58.9 percent versus 53.0 percent). Shortages of skilled labor were cited as the second most significant limitation at 39.1 percent. The national average price expectations rose to 3.7 percent, exceeding the upper limit of the Bank of Canada's inflation target range and marking the highest level since April 2023. Conversely, the average wage increase plans decreased from 2.2 percent to 1.9 percent.