Despite fears of continued supply chain issues and labour shortages, Big Six bank economist sees reasons for hope
With many firms citing supply chain issues in addition to fears about additional restrictions and continued labour shortages, morale among small businesses has not improved since the beginning of January.
According to the latest edition of the Canadian Federation of Independent Business’s (CFIB) Business Barometer, the 12-month index decreased to 54.3, while the three-month index dropped to 36.9, both of which were in line with the preliminary figures issued by the CFIB in mid-January.
Simon Gaudreault, Vice-President of National Research at CFIB, confirmed this in a statement: “There has been no improvement in small business outlook since the start of [January]. The retail, hospitality and personal services sectors are particularly uncertain about the future."
The retail sector reflected the lowest level of optimism for the next three months, with 30.4 index points, down nine points from December. Hospitality (32.0), personal services (39.3), and health and education services (41.8) also saw bleak short-term prospects.
Other business health indicators have remained at low levels since the beginning of January and with full-time staffing plans still in the red, 23% of companies are expecting layoffs in the next three months and only 16% are expecting to hire.
Supply chain problems are escalating as businesses continue to cite shortages of input items (29%) and distribution difficulties (23%), respectively, as a key barrier restricting their expansion. Furthermore, unsold stocks fell to 58%, compared to 68% in December.
"Small businesses have been experiencing supply chain challenges, from a shortage of products to increasing input costs, since the middle of 2021, but the issue is now gaining momentum," Andreea Bourgeois, Director of Economics at CFIB, said. "This only adds to the uncertainty many small businesses are facing."
In a commentary, TD economist Ksenia Bushmeneva laid out the significance of these findings, noting that the Omicron variant hitting Canada has harmed the prospects of Canadian small enterprises, particularly in sectors where additional regulations have been imposed.
Both near-term and one-year confidence have plummeted to levels not seen since the pandemic's first year, she said. Businesses have faced a wide range of issues in recent months, including increased expenses, supply chain delays (worsened by the spread of Omicron), labour shortages, and rising debt levels.
Considering these difficulties, the federal government has temporarily extended pay and rent assistance to businesses affected by capacity constraints and closures. It also extended the payback deadline for Canadian Emergency Business Account (CEBA) loans by one year, until December 2023, for businesses to remain eligible for partial debt amnesty.
But while things look bleak for many business owners now, Bushmeneva predicted conditions will improve in the short term.
“The current wave of the pandemic, while vicious, may be relatively short-lived,” she said, noting announcements of eased restrictions in Ontario and Quebec. “This should put businesses in better spirits [in February].”
