Despite global trade tensions and expectations for slower growth, Canadian business sentiment has turned more positive.
Business sentiment improved slightly in August for small and medium enterprises (SMEs) after dropping in July, says the business barometer index published monthly by the Canadian Federation of Independent Business (CFIB).
The index gained almost three points in August to reach 60.6. It’s only the second time this year that the index crossed the 60-point mark.
While the business sentiment survey was conducted during the recent escalation in U.S.-China trade tensions, results are likely skewed “somewhat” positively by relatively strong domestic conditions, said a report from Scotiabank Economics. Only about 4% of all Canadian SMEs sell their output abroad, it said.
And for those who do sell abroad, most output goes to the U.S., where consumer demand is solid.
Scotiabank also noted that business activity and sentiment reflected in August’s index is an important bellwether for the Canadian economy: SMEs account for about 99% of Canadian businesses and produce about half of total business output.
Further, SMEs employ over two-thirds of private-sector workers and have dominated Canada’s strong job gains during 2019, the Scotiabank report said.
The index showed that improved sentiment was widespread, with eight of the 10 provinces posting higher results in August. However, the industry picture was mixed.
The biggest improvements in business sentiment came from professional service sectors and parts of Eastern Canada; transportation and Alberta exhibited the biggest sentiment declines.
“Transportation gave up its gains from May-June amidst a substantial pullback in hiring intentions, still-firm fuel prices and rising trade doubts,” the Scotiabank report said.
It also noted that in Alberta, as well as in Saskatchewan and Newfoundland and Labrador, weak domestic demand was cited as a stronger limitation on sales or production growth than was shortages of skilled labour.
“This reflects the relatively poor outlook for growth in Alberta and Saskatchewan in 2019, and the dominance of large projects in the growth rebound happening this year in Newfoundland and Labrador,” Scotiabank said.
Overall, 43% of SMEs cited the shortage of skilled labour as a reason for the inability to increase sales or production.
Lastly, wage and price plans remained stable, near the 2% mark, which appears to point toward a moderation in overall inflation, the Scotiabank report said.
The CFIB business barometer index for August is based on 661 responses collected from a stratified random sample of CFIB members. Responses were received through Aug. 19.