CFIB Small Business Barometer (March 2023)

Small Business Optimism Continued to Improve in March

• The CFIB Small Business Barometer rose for a fourth straight month as confidence about the next 12-months improved by 3.5 points to 55.3 in March. The short-term outlook based on a 3-month ahead index also notched up by 3 points to 52.2. Following a few months of gains, both indexes are now at levels seen at the end of last summer. 
• Expectations for price increases edged lower. Small businesses expected to raise prices by 3.5% over the next twelve months, down from 3.7% in February and the 4.9% peak in May 2022. Wage expectations also ebbed from the month prior but generally remain stickier than prices. Planned wage increases for the year ahead moved down to 3.1% compared to 3.3% in February, but continue to oscillate around 3%-mark. 
• Looking at the industrial breakdown, retail and agriculture continues to post the lowest optimism level (at 42% and 45%, respectively) about their performance in the next twelve months. Relative to the year ago, confidence is down in broadly all industries, with only transportation, wholesale trade and professional and business services bucking the trend. The most significant decline in optimism relative to a year ago is in retail, natural resources, information, arts and recreation and finance & insurance industries. 
• Input cost pressures continue to be a concern for small businesses. The share of businesses worried about borrowing costs and product input costs edged slightly higher in February and is running at levels around twice their historical averages. Concerns about fuel/energy costs continued to ease but remain elevated. Wages is another notable area of cost pressure, with 65% of respondents respectively citing them as a key concerns.
• Supply chain challenges also continued to recede from their peak last spring. Significantly fewer firms reported that distribution constraints or a shortage of input products were restraining their business' capacity. Concerns about labour shortages (both skilled and semi-skilled/unskilled) have eased in March, but remain much higher than historical average.            

Key Implications

• Small business confidence has recovered some ground at the start of the year, in line with improvement seen in other economic indicators, such as consumer spending, job growth, and consumer confidence. The uptick in confidence in recent months is welcome, but overall optimism is still relatively blunted compared to historical levels, with the longer-term index below its pre-pandemic average of 62.2. As for improvement in the near-term index, seasonal factors appear to be at least partially at play, with that component generally rising in the first quarter of the year.  
• While some of the headwinds, such as supply chain backlogs and gasoline prices have been easing, others have intensified. A slower growth outlook for the Canadian and U.S. economies this year, combined with higher interest rates will likely weigh on businesses' investment and expansion plans. The consumer is also likely to be put under increased financial stress over 2023, which will weigh on sales and margins, ultimately affecting business' bottom lines.               

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