Sentiment among Canadian small and medium-sized businesses falls in the third quarter

According to the CFIB business barometer, sentiment among small businesses declined by 0.7 points to 56 in September, the lowest reading since the last recession. This is the fourth consecutive month of declines and prolongs the downward trend that began at the start of the year.

In all, 7 of the 13 sectoral components of the index experienced a loss in confidence over the month. The most significant changes occurred within the hospitality (55.8) and recreation sectors (65.4), whose index levels fell by 9.3 and 6.8 points, respectively. The recent drop in oil prices weighed on sentiment in the natural resources sector, which decreased by 2.5 points to 32.7. In contrast, optimism was present among businesses involved in the construction (+4.7 points to 55.5), retail (+3.8 points to 58.6), and transportation (+3.8 points to 58.4) sectors.

Regionally, sentiment weakened in the majority of provinces, led by Prince Edward Island (-7.3 points to 60) and Alberta (-6.4 points to 34), whose index level now stands at a record low. The morose sentiment also extended to Saskatchewan (-2.0 points to 59.9), as well as Ontario (-1.4 points to 59.9) and British Columbia (-1.2 points to 62.9). On the other hand, confidence edged higher in Newfoundland and Labrador (+4.6 points to 61.5) and Quebec (+2.2 points to 59.5), while businesses in Nova Scotia remained the most optimistic in Canada despite today's losses (-2.0 points to 63.7).

The CFIB barometer ended the third quarter on a low mark. The index was down 3.2 points in Q3 2015 as a whole, compared to the same period last year. It appears that firms do not expect their business performance to improve significantly, or at all, despite calls for a rebound in real GDP growth over the remainder of the year.

However, today's reading should not mask the fact that small and medium-sized businesses have proved resilient so far this year, despite the slowdown in economic activity. As an illustration, they were responsible for more than 80% of job gains in Q1 2015. It is also worth noting that the overall sentiment remained fairly stable when excluding oil-producing provinces.

"Small businesses will face diverse fortunes depending on where they operate. Indeed, the divide between energy-rich provinces and the other regions will remain intact as long as the low oil price environment prevails. However, strength in manufacturing sales and non-energy exports is expected to continue going forward, suggesting that provinces with a dominant manufacturing sector are well positioned to reap the benefits of lower energy prices, a weak Canadian dollar and rising U.S. demand", notes TD Economics.