Despite signs pointing to an economic recovery in Canada, small and medium-size business owners' optimism declined for the third month out of four, but still remains in the "growth" range, according a survey from the Canadian Federation of Independent Business yesterday.
The CFIB's Business Barometer index fell to 65.7 last month from to 66.4 in June. Measured on a scale between zero and 100, an index level above 50 means the majority of owners expect their businesses' performance to be stronger in the next year.
Index levels normally range between 65 and 75 when the economy is growing, according to the CFIB. It reached its lowest point when it fell below 40 in the fourth quarter of 2008.
"We have found historically that the Business Barometer index moves in proximity with the GDP and really can give us a sense of where the GDP is going months before the official numbers come out," said CFIB vice-president and chief economist, Ted Mallett. "Business owners are likely betting on higher interest rates and slower growth into the future."
Estimates for last month fell in eight of 13 industry groups and seven out of 10 provinces.
However, 84% of respondents still said the overall state of their business was "satisfactory" or "good" and more than 80 per cent expect their business to be better or the same in the following year.
The rise and stabilizing of the index through the second half of 2009 was in tandem "with skyrocketing real GDP and employment growth and a robust recovery in the housing market," Francis Fong, at TD Economics, said in a research note.
"However, after hitting its high of 69.9 in April 2010, the index has since fallen for the past three months to its current level, and 45 per cent of owners are complaining of insufficient domestic demand.
"This coincides with our expectation of a mid-cycle moderation in Canadian real GDP growth, which is reflecting the overspent condition of Canadian households and the maturation of the U.S. economic recovery."
Regionally, the CFIB index shows strength is concentrated in Newfoundland and Labrador and British Columbia, with levels of 71.9 and 70.3, respectively. New Brunswick, Saskatchewan, Ontario and Alberta are in the 65-to-68 range, while business-owner optimism levels in Quebec, Nova Scotia and Prince Edward Island are a few points below the national average. Manitoba had the lowest reading at 60.1.
The July findings are based a controlled-access Web survey of 1,022 responses, collected from a stratified random sample of CFIB members. Findings are statistically accurate to plus or minus 3.1% 19 times in 20.
A study also released yesterday from the Bank of Montreal, showed 77% of Canadian business owners feel an economic recovery is underway and 80% are actively investing in their business. That survey did not include small businesses.
