Economy growing smartly, CFIB says

Quarterly survey finds small business more confident in past three months

Small business has grown more confident in the past three months -- an indicator that the economy is growing smartly during the final quarter of the year, according to a survey released yesterday.

The Canadian Federation of Independent Business said its quarterly business barometer has climbed to its highest level since the middle of 2002, suggesting that the economy has shaken off "the uncertainties of early 2003 and the shocks experienced in the summer months."

The gain is significant because the ups and downs of the CFIB index tend to match the quarterly growth rate in the broader economy. The index plunged in the second quarter, when the economy contracted after being hit by the SARS outbreak in Toronto and the case of mad-cow disease in Alberta that closed export markets to Canadian beef. In the third quarter, both the CFIB index and the economy revived. The Bank of Canada tracks the CFIB index for signs of where the economy is heading.

The latest increase "bodes well for Canada's [economic growth] performance in the fourth quarter of 2003," the group said.

The survey also indicated that "the holiday retail season appears to be shaping up quite well," the CFIB said. About 39 per cent of retailers said they are doing better than a year ago, while only 27 per cent said business is worse.

Small business owners are divided on the impact of this year's rapid rise in the Canadian dollar. "Almost as many businesses favour a high dollar as favour a low dollar," the organization said in its report.

About 32 per cent of those surveyed said a lower dollar helps their business, while 24 per cent preferred a higher dollar. About 35 per cent said the currency has no impact on their business, while 8 per cent did not know.

CFIB's chief economist Ted Mallett said the latest results -- gathered when the dollar was worth about 77 cents (U.S.) -- "are virtually identical" to the results a year ago, when the dollar was around 64 cents.

Sectors hurt most by the higher dollar depend heavily on exports: about 52 per cent of manufacturers and 60 per cent of transportation companies said they prefer a lower dollar.

Fans of the higher dollar include wholesalers (43 per cent said they like it), retailers (31 per cent) and companies in health care and education (32 per cent). The CFIB said all "are more often helped by a high Canadian dollar because of the benefit it has in reducing import prices."

The latest improvement in overall small business confidence lifted the CFIB index to 109.9 from 107.7 in September and 104.8 in June. The value of the index in 1988 -- the year it was launched -- is set at 100. The group conducted the survey annually until 2001, when it switched to a quarterly reading.

About 39 per cent of those surveyed said their companies were doing better than a year ago, while 28 per cent said they were doing worse. Over the next 12 months, however, 53 per cent said they expect an improvement, while only 12 per cent said they anticipate a weaker outlook. The other 35 per cent foresaw no change.

The companies' rising confidence showed up in their plans for hiring and capital spending. About 31 per cent -- up from 29 per cent in September -- said they planned to increase their payrolls of full-time workers. Hiring plans were most buoyant among business service companies (43 per cent), manufacturers (41 per cent) and construction companies (38 per cent).

A growing share of companies also plan to invest in equipment, buildings and vehicles over the next year. This represents a reversal after three consecutive quarters of decline.

The survey is based on responses from a sample of 2,556 business owners who were contacted in the period from Nov. 25 to Dec. 5.