Small businesses in Alberta haven't been this pessimistic in years, lobby group says
CFIB blames oil-price differential for biggest plunge in its 'business barometer index' since late 2014
Small businesses in Alberta haven't been this pessimistic in years, according to an industry lobby group who says the oil-price differential is largely to blame — even if prices for Canadian crude have recently recovered.
The Canadian Federation of Independent Business says confidence among its Alberta members plunged in December and January, according to a monthly survey it conducts.
Prices for Western Canadian Select also plunged in late 2018, reaching a low point in late November, and CFIB chief economist Ted Mallett believes that's related to the sudden shift in business sentiment.
"Because it's in such recent memory, I think that's why you saw a decline in optimism happen so quickly this time," he said.
The CFIB's "business barometer index" for Alberta plunged more that 15 points over December and January, falling to a level of 37.5 on a scale of zero to 100.
The index measures how CFIB members feel about the future.
Mallett said a score of zero would represent "perfect pessimism" (meaning every member surveyed expects things will be worse for their business in one year's time) while a score of 100 would represent "perfect optimism."
A score of 60 or more is usually associated with a growing economy, Mallett said.
The plunge over the last two months marks the sharpest decline in Alberta since the oil crash of late 2014, when the price for crude on world markets was cut roughly in half in a span of six months.
Mallett said the massive oil-price differential that developed in late 2018 had a similar impact.
"The price for Western Canadian Select vis-à-vis WTI caused some big problems and concerns with businesses in the province," he said.
"A large shift in the economics of oil-and-gas pricing has a big effect on other businesses all the way down the line."
In an effort to close the differential, the Alberta government took an extraordinary step in December, mandating temporary cuts in the province's oil production.
On Wednesday, the province announced it was easing those production limits because prices for Canadian crude had recovered to a sufficient degree.
But it's unlikely business confidence will recover as quickly, Mallett said.
"It takes a long time for optimism to come back," he said.
And that sentiment can have a broader impact on the entire economy.
The impact of business confidence
The CFIB is a non-profit organization that advocates on behalf of small businesses across Canada.
It has roughly 10,000 members in Alberta, which represents about six per cent of the 175,000 total businesses in the province.
If its members' sentiments are representative of the broader business community, it could present a problem for the economy as a whole, says Anupam Das, an economist with Mount Royal University.
Business confidence matters, he said, because it affects investment decisions.
If there's an optimistic sentiment out there, he said, businesses are more likely to hire more workers or expand their capital spending. But if the mood is pessimistic, the fear of losing money can make those investments less likely.
"When that fear comes into people, they start making certain decisions," Das said.
"So I think the perception — or the fear — is, actually, an important factor."
Speaking to a gathering of mid-sized city mayors in Calgary on Thursday, United Conservative Party leader Jason Kenney described Alberta's current business climate as particularly dire.
Kenney said he's hearing negative things from people who are looking at investing in the province.
"I was, just last night, meeting with the CEO of a global company visiting Calgary with a market cap of $50 billion who told me people aren't walking away from investing in Alberta — they are running away from investing in Alberta," Kenney said.
He didn't name the CEO or the company.
Premier Rachel Notley, also speaking in Calgary on Thursday, said there's been billions of dollars of new private-sector investment announced in the past couple of months alone and there is "more investment on the way."
During an NDP rally at the downtown legion, she highlighted Inter Pipeline's recent decision to go ahead with a $3.5-billion petrochemical project and Value Creation Inc.'s plan to invest more than $2 billion in an upgrading facility aimed at turning bitumen into higher-grade crude that can flow more easily through pipelines.
Both projects came as the result of government incentives aimed at spurring investment and diversifying the economy, Notley said.
"And we're already seeing results," she said.
The CFIB surveyed 276 of its Alberta members in December and January.
A random sample of that size would yield a margin of error of about 5.8 percentage points, 19 times out of 20.
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With files from Lucie Edwardson