Rural and Small Town Canada Analysis Bulletin
The outlook of rural businesses, first quarter of 2025
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Key highlights
- Cost-related challenges continue to be a key concern for rural and small town businesses, though there are indications of easing compared with the previous quarter. Inflation remains the most reported obstacle for rural and small town businesses, followed by the cost of insurance and cost of inputs.
- Labour shortages and employee recruitment and retention challenges persist for rural and small town businesses. In response, businesses are assessing adjustments to wages and training investments to address these pressures over the next 12 months.
- While some rural and small town businesses saw revenue growth in 2024 compared with 2023, there are concerns about profitability and rising operating expenses. Reports of supply chain-related challenges also increased, with rural and small town businesses expecting these difficulties to continue.
Introduction
In January 2025, the Bank of Canada reduced its benchmark interest rate to 3.0%.Note The Canadian Consumer Price Index rose by 1.9% year over year.Note Prices of Canadian manufactured products increased by 5.8% and the cost of raw materials purchased was up 11.8% over the same period.Note Average hourly wages saw an increase of 3.5% year over year.Note Employment in rural and small town (RST)Note areas —unadjusted for seasonality— grew by 7,100 (+0.3%) compared with the previous month, while the unemployment rate rose to 6.0%, up 0.6 percentage points.Note
This analysis focuses on RST businesses and is based on results from the Canadian Survey on Business Conditions, which examines the current operating conditions and future expectations of businesses. The survey was conducted between January 2 and February 6, 2025, for the first quarter of 2025.
Against this backdrop, RST businesses face ongoing challenges, including those related to costs, labour and supply chains. However, optimism about their outlook over the next 12 months increased from the previous quarter, demonstrating resilience amid persistent pressures.
Majority of rural and small town businesses face cost-related challenges
In the first quarter of 2025, cost-related obstacles,Note including inflation and the cost of inputs, continue to be the most significant concern for RST businesses over the short term.Note However, there was a decrease of 5.2 percentage points (from 66.7% to 61.5%) compared with the fourth quarter of 2024. Inflation is the most commonly reported issue cited by 43.3% of RST businesses in the first quarter of 2025, followed by the cost of insurance, at 31.6%.
The cost of inputs is the third most cited obstacle in the first quarter of 2025, with 3 in 10 RST businesses (30.8%) reporting this concern. Among these businesses, concerns about the cost of labour (50.9%) and raw materials (48.2%) persist. About one in five RST businesses (22.2%) plan to raise prices for their goods or services over the next three months, marking an increase of 2.3 percentage points from the previous quarter (19.9%). On the other hand, over two-thirds (69.8%) of RST businesses expect their prices to remain relatively unchanged, which may indicate a cautious approach to passing costs to consumers.
Data table for Chart 1
| Obstacles for businesses | |||
|---|---|---|---|
| Cost-related obstacles | Labour-related obstacles | Supply chain-related obstacles | |
| Sources: Canadian Survey on Business Conditions, fourth quarter of 2024 and Canadian Survey on Business Conditions, first quarter of 2025. | |||
| Fourth quarter of 2024 | 66.7 | 42.0 | 11.7 |
| First quarter of 2025 | 61.5 | 40.5 | 17.3 |
Operating expenses expected to increase for rural and small town businesses
In the first quarter of 2025, RST businesses project improvements in operating incomes over the next three months, up 7.2 percentage points (from 15.5% to 22.7%) from the fourth quarter of 2024. However, more than two-fifths (41.3%) of RST businesses anticipate higher operating expenses, an increase of 7.6 percentage points compared with the previous quarter (33.7%). Meanwhile, over one-quarter (26.7%) of RST businesses expect profitability to decrease in the short term. On the other hand, 1 in 10 (10.6%) RST businesses expect profitability to rise, though this represents a decrease of 2.8 percentage points from the previous quarter (13.4%). Despite this, confidence remains high among RST businesses, with most (92.3%) expressing that they are very or somewhat confident in their ability to make payments to suppliers and services providers in full and on time.
Looking ahead, more than half of RST (56.0%) and urban (51.1%) businesses (specifically, private sector businesses and non-profit organizations)Note do not plan to expand, restructure, acquire, invest or close over the next 12 months. Among those planning adjustments, the most common strategy for both RST (8.1%) and urban (9.5%) businesses is to expand their business without increasing physical space. By contrast, 4.7% of RST businesses in the private sector are considering selling their business, while 3.3% of their urban counterparts report similar intentions.
Rising concerns about supply chain challenges among rural and small town businesses
In the first quarter of 2025, concerns about supply chain-related challengesNote are growing, with the share of RST businesses reporting issues rising to 17.3% from 11.7% in the previous quarter. Of these businesses, nearly half (48.9%) expect supply chain conditions to worsen over the next three months, up 23.3 percentage points from the previous quarter (25.6%).
Nearly one-quarter (24.8%) of RST businesses experiencing supply chain issues report that conditions worsened over the last three months. Among these businesses, 69.9% identify increased prices of inputs, products or supplies as the primary factor driving worsened supply chains, while 54.1% highlight increased delays in deliveries of inputs, products, or supplies.
For RST businesses that faced disruptions in acquiring inputs, products, or supplies from domestic or international sources over the past year, 12.2% experienced disruptions because of labour disputes impacting transportation or logistics providers and 11.6% encountered disruptions because of labour disputes impacting suppliers.
Data table for Chart 2
| Outlook of supply chain challenges | |||
|---|---|---|---|
| Supply chain challenges are expected to worsen | Supply chain challenges are expected to remain about the same | Supply chain challenges are expected to improve | |
| percent | |||
| Sources: Canadian Survey on Business Conditions, fourth quarter of 2024 and Canadian Survey on Business Conditions, first quarter of 2025. | |||
| Fourth quarter of 2024 | 25.6 | 66.5 | 7.9 |
| First quarter of 2025 | 48.9 | 43.1 | 8.0 |
Labour-related obstacles persist for rural and small town businesses
In the first quarter of 2025, two-fifths (40.5%) of RST businesses expect labour-related obstaclesNote over the next three months. RST businesses report recruitment difficulties (29.8%), labour shortages (20.3%), and employee retention (17.0%) concerns. Additionally, nearly one-fifth (17.4%) of RST businesses state that the availability or cost of housing has affected recruitment efforts over the past 12 months moderately or to a large extent, similar to the 18.3% of urban businesses reporting the same.
Nearly half (45.5%) of RST businesses plan to raise wages over the next year, with an average wage increase of 7.9%. Moreover, 9.7% of RST businesses expect to increase training expenditures over the short term. Just over one-third (33.5%) plan to offer classroom, workshops, or online training over the next 12 months, comparable to the 35.1% of urban businesses with similar plans. Additionally, 26.5% of RST businesses and 25.5% of urban businesses intend to use mentoring and buddying programs. However, financial constraints limit the ability of some businesses to invest in staff development. Among RST (50.6%) and urban (50.3%) businesses that are not planning such measures, 8.7% and 16.4%, respectively, cite the lack of funds as the main reason.
Limited technology investments and outsourcing practices among rural and small town businesses
In the first quarter of 2025, the majority (84.3%) of RST businesses report no online sales in 2024, with a smaller proportion (1.3%) generating their sales exclusively online. About two in three RST businesses (65.4%) do not plan to invest in advanced technologies over the next year. Of these businesses, four-fifths (80.9%) consider such investments irrelevant to their operations, while 11.0% point to financial constraints as a barrier. Additionally, 6.6% report recent investments in technology, while 5.6% face challenges to invest in technological advancement because of lack of expertise.
Data table for Chart 3
| Plans to invest in advanced technologies | |||
|---|---|---|---|
| Plans to invest in advanced technologies | Does not plan to invest in advanced technologies | Unknown | |
| percent | |||
| Sources: Canadian Survey on Business Conditions, first quarter of 2025. | |||
| Rural and small town area | 16.6 | 65.4 | 18.0 |
| Functional urban area | 18.2 | 60.0 | 21.8 |
Outsourcing practices among RST businesses (45.7%) were similar to those of urban businesses (48.2%), with comparable proportions reporting no outsourcing of tasks, projects or short contracts over the last 12 months. For those that did outsource, RST businesses most commonly relied on accounting, law, or other professional services (39.7%), followed by general labour, repairs, or cleaning services (20.9%), and website or software development, or computer programming (13.9%). However, among these RST businesses that outsourced at least one task, project or short contract, the use of digital platforms for outsourcing remained limited as the majority (92.8%) did not use third party digital platforms, compared with 78.6% of urban businesses.
Nearly two-thirds (66.4%) of RST businesses expect their employees to work exclusively onsite over the next three months, 13.7 percentage points higher than their urban counterparts (52.7%). On the other hand, 4.0% of RST businesses anticipate an exclusively remote workforce over the short term, while 5.4% of urban businesses report the same.
Three in 10 rural and small town businesses report higher revenues in 2024 compared with 2023
Nearly one-third (30.9%) of RST businesses reported higher revenues in 2024 compared with 2023, with an average increase of 20.9%. Nearly two-fifths (38.6%) of RST businesses state that revenues remained unchanged, while 30.5% reported lower revenues in 2024, with an average decrease of 25.2%.
Methodology
The Canadian Survey on Business Conditions uses a stratified random sample of business establishments with employees classified by geography, industry sector and size. Proportions are estimated using survey weights ensuring that the survey results are representative of all employer businesses in Canada. Businesses were classified based on their geographic location. Businesses located within census metropolitan areas or census agglomerations were classified as part of functional urban areas. All businesses in other locations were categorized as part of RST areas. The most recent iteration of this survey was conducted from January 2 to February 6, 2025. The total sample size for this iteration of the survey is 21,224 and results are based on responses from a total of 9,785 businesses or organizations.
References
Statistics Canada. (2025, February 28). Canadian Survey on Business Conditions.
Related products
Business Conditions in Rural and Small Town Canada: Interactive Dashboard
Rural Canada Statistics Portal
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