Outlook of rural businesses, fourth quarter 2024

In the fourth quarter of 2024, Canadian businesses navigated an evolving economic landscape shaped by factors such as inflation, rising input costs, labour shortages and interest rates. Despite these challenges, most rural and small town (RST) and urban businesses remained somewhat or very optimistic about their 12-month outlook.

Cost-related obstacles pose challenges for rural and small town businesses

In the fourth quarter of 2024, cost-related challenges were a major concern for RST (66.7%) and urban (65.4%) businesses. Inflation (44.3%) and the rising cost of inputs (39.8%) were the top issues reported by RST businesses, followed by the cost of insurance (36.4%), and interest rates and debt costs (30.9%). Urban businesses shared similar concerns, with inflation (45.0%) and the rising cost of inputs (37.1%) topping the list, while also facing challenges related to real estate, leasing or property taxes (28.0%); interest rates and debt costs (28.0%); and the recruitment of skilled employees (28.0%).

The rising cost of inputs, including the rising costs of labour and raw materials, was particularly impactful, with RST businesses (48.9%) reporting greater challenges related to raw material costs, compared with urban businesses (39.5%). Conversely, 65.3% of urban businesses pointed to rising labour costs as a primary concern, while 57.7% of RST businesses reported the same concern.

Chart 1: The top four obstacles for businesses in rural and small town areas over the next three months, compared with businesses in functional urban areas

Note: Figures for businesses in functional urban areas are provided for comparison only. These businesses do not have the same top obstacles as those in rural and small town areas. The top obstacles for urban businesses included inflation (45.0%), the rising cost of inputs (37.1%), interest rates and debt costs (28.0%), the rising costs in real estate leasing or property taxes (28.0%) and the recruitment of skilled employees (28.0%).

Source: Canadian Survey on Business Conditions (5318), fourth quarter of 2024.

Rural and small town businesses impacted by interest rates

Nearly half (47.6%) of RST businesses indicated in the fourth quarter of 2024 that interest rates had a medium or high impact on their operations. Among these businesses, the cost of existing debt (39.4%) and new borrowing costs (22.3%) were key aspects of their businesses that were affected by interest rates. Similarly, nearly half (48.2%) of urban businesses reported that interest rates had a medium or high impact on their business, with the cost of existing debt (31.9%) and the sales of products and services (19.6%) being most affected.

Chart 2: Aspects of business most impacted by interest rates for businesses in rural and small town areas, compared with businesses in functional urban areas

Note: Figures for businesses in functional urban areas are provided for comparison only. These businesses do not share the same operational elements most affected by interest rates as those in rural and small town areas. The key business factors influenced by interest rates for urban businesses included the cost of existing debt (31.9%), the sales of products and services offered by the business (19.6%) and new borrowing costs (13.8%).

Source: Canadian Survey on Business Conditions (5318), fourth quarter of 2024.

Rural and small town businesses face labour-related obstacles

In the fourth quarter of 2024, more than two-fifths of RST (42.0%) and more than one-third of urban (36.3%) businesses expected to face labour-related challenges in the short term. For RST businesses, 29.8% expected recruitment challenges, 24.2% cited labour shortages and 20.3% expressed concerns about employee retention. Urban businesses anticipated similar difficulties, with 28.0% indicating recruitment issues, 18.0% identifying labour shortages and 19.1% citing employee retention as obstacles.

Over two-fifths of RST (42.5%) and urban (42.6%) businesses planned to increase average wages over the next year. Among these RST businesses, the primary drivers were the current rate of inflation (59.1%) and the need to retain talent (44.5%). Urban businesses similarly cited the current rate of inflation (53.4%) as a key factor for wage increases but reported greater pressure to retain talent (50.3%), compared with RST businesses.

Chart 3: The top three reasons for expecting an increase in average wages over the next 12 months for businesses in rural and small town areas, compared with businesses in functional urban areas

Note: Figures for businesses in functional urban areas are provided for comparison only.

Source: Canadian Survey on Business Conditions (5318), fourth quarter of 2024.

Most rural and small town businesses are optimistic about their future

In the fourth quarter of 2024, RST and urban businesses reported optimism for the future, with 75.3% of RST and 70.8% of urban businesses somewhat or very optimistic about their future. RST businesses in professional, scientific and technical services (92.2%) were among the most optimistic, while urban businesses in mining, quarrying, and oil and gas extraction (84.0%) had the highest level of optimism.