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Bryan Yu: Fewer B.C. SMEs are in good business health as optimism worsens

Labour shortages ease but sales growth remains weak amid falling optimism in the SME sector
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Labour constraints and soft demand continue to weigh on Canadian SMEs, with B.C. seeing a second month of decline, according to CFIB survey.

Business optimism among small and medium-sized enterprises (SMEs) in Canada worsened slightly in September, as reported in the Canadian Federation of Independent Business’ (CFIB) Monthly Business Barometer survey.

The long-term, 12-month index fell by 1.9 points to 55 points, while the short-term index dropped by 1.7 points to 50.3—a little over the 50-point benchmark. The general state of business health reported by most SMEs was “satisfactory,” a consistent post-pandemic trend as factors such as insufficient domestic and foreign demand and labour shortages hamper sales growth.

That said, the number of small businesses reporting lower sales due to labour shortages fell to its lowest point in two years. The September results signal that still-mediocre confidence is widespread among Canadian SMEs—in line with the slowing economy.

According to the CFIB survey, two inflation indicators—the average price increase index and the planned average wage increase indicator—both dropped to 2.3 per cent. Both have been trending lower since mid-2024. More employers also expect full-time employment levels to decline in the near term. Reduced hiring is a consequence of budget trimming plans by small businesses that are facing higher costs and lower revenues as they look forward to more rapid rate cuts.

B.C. was among the majority of provinces recording falling short-term optimism in September, with the index down 0.6 points to 47.9 points. Also, the long-term three-month index declined by 1.1 points to 54.7. Both indices have fallen for the second consecutive month.

Twenty-eight per cent of B.C. SMEs considered themselves to be in a good state of business health, down from 33 per cent in August. Plans to increase full-time staff have also dwindled. Insufficient demand and shortages of skilled and unskilled labour topped the list of constraints to sales or production growth for businesses in the province. Limited working capital and physical space also hampered sales growth. Taxes and regulatory costs, insurance and wage costs were the highest input cost constraints—a list that also includes fuel, occupancy and borrowing costs.

On the tourism front, the number of non-resident travellers entering Canada via British Columbia fell by one per cent in July to a seasonally adjusted number of just over 691,000 visitors. It was the second month in a row that the number of non-resident visitors declined. Same-day excursions fell 1.5 per cent to nearly 264,000 visitors, while overnight tourists declined 0.8 per cent to roughly 427,500. Year to date, the total number of non-resident visitors entering Canada through B.C. is up 8.9 per cent over the previous year, with U.S residents up 8.2 per cent and residents of other countries up by 11.8 per cent.

The number of U.S. residents fell 0.1 per cent in July to nearly 552,000 people on a seasonally adjusted basis. The decline was seen in air travel—with arrivals down by 0.4 per cent—and in other modes of transportation (down 1.3 per cent). However, arrivals by automobile increased 0.5 per cent. Month to month, the number of residents from countries other than the U.S. fell by 4.7 per cent to a little over 140,000, with air arrivals down 4.6 per cent and land or water arrivals up 4.8 per cent.

Bryan Yu is chief economist at Central 1.

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