Short-term business confidence tumbled in December as the Omicron spread intensified globally and wage pressures remained elevated.
According to the latest CFIB Business Barometer reading, the 3-month outlook for Canadian small business retreated 4.5 points to 45.1 points. A value below 50 points suggests that on net, businesses are downbeat about the coming months.
With a survey period of December 1 to 15, tighter COVID restrictions had yet to be implemented in many regions but some businesses may have already been on alert given the global news flow.
The steepest declines were observed in the retail sector, while hospitality confidence remained low. The long-term (12- month outlook) index was little changed at 62.6 points suggesting at the time of the survey, businesses remained upbeat about the year ahead.
Confidence eroded in most provinces, including B.C., where the short-term index fell for a third straight month to 44.8 points and marked the lowest level since March. Recent flooding that destroyed critical infrastructure, business and interrupted shipping routes further contributed to declining confidence.
Full- time staffing plans was on net, positive, with 22 per cent looking to hire and 16 per cent cutting but have likely tempered.
Tightening of restrictions due to the Omicron variant has undoubtedly eroded confidence since mid- December. While measures vary by province, businesses are grappling with re-introduction of capacity limits, closures of some sectors, and mandatory cancellations of holiday events that will extend through much of January. Tourism flows to Canada have further pulled back. For some businesses this could lead to permanent closures given the burden of additional debt, unsaleable inventory, and reliance on seasonal holiday sales.
Adding to concerns into 2022 include increased costs associated with rising input costs including wages. Average wage plans suggested average growth of about 3.0 per cent over the next year compared to around one per cent a year ago, although prices are projected to rise at an even faster pace.
Retail sales volumes in British Columbia grew modestly in October moving up 0.3 per cent to a seasonally- adjusted $8.3 billion following a 0.4 per cent gain in September. On a year-over-year basis, sales growth slowed to 3.8 per cent from 5.8 per cent.
Sales flow has largely held steady since early this year after surging through 2020 as consumers pivoted towards service spending after splurging on goods last year.
Spending has decelerated in store segments like motor vehicle and parts, building materials and gardening stores, and food and beverage stores.
Clothing sales are bouncing back. Through the first ten months of 2021 sales are ahead of last year’s pace by 14.6 per cent, reflecting robust consumer appetites and weakness in early 2020. Headwinds in late- 2021 have likely dampened spending.
Bryan Yu is chief economist at Central 1 Credit Union.