Small Business Confidence in Canada Hits One of Lowest Levels Ever, CFIB Says

A worker boards up a closed clothing store in Vancouver on April 16, 2020. (Darryl Dyck/The Canadian Press)

Small business confidence in Canada has hit one of its lowest levels ever amid fear of a Christmas recession, according to the Canadian Federation of Independent Business (CFIB).

The federation reported on Nov. 24 that the confidence of Canadian small business owners is on a downward trend for the third consecutive month, and their outlook on the future is not promising.

“The situation remains sobering for many small businesses. High costs of doing business, a lack of staffing, and ongoing interest rate hikes make it harder for them to know for sure where their business is headed,” Simon Gaudreault, chief economist and vice president of research at CFIB, said in a news release, as first reported by Blacklock’s Reporter.

“The short-term and 12-month outlooks for retail, in particular, have been quite low for the past several months, which is not what we expect to see in the lead-up to the holiday shopping season.”

The CFIB’s latest “Business Barometer” report states that the short-term optimism index, which is based on three-month forward expectations for business performance, fell to 43.8—a 2.2-point drop from October.

According to the report, an index below 50 indicates that there are fewer business owners feeling confident than negatively about the months ahead.

Meanwhile, the long-term index, based on a 12-month outlook, dropped 1.2 points to 50.0 this month—the lowest recorded since 2009, outside of the 2008/09 and 2020 recessions, the CFIB said.

The findings were based on a questionnaire that asked: “Allowing for normal seasonal influences, what are your business performance expectations for the next 3 or 4 months?” and “How do you expect your firm to be performing in 12 months compared to now?”

In total, 719 CFIB members participated, answering the questions through an online survey Nov. 3–11.

Respondents were also asked “what factors are limiting your ability to increase sales or production?” to which 53 percent cited shortage of skilled labour.

When asked, “What types of input costs are currently causing difficulties for your business?” 71 percent said “fuel, energy costs.”

Findings are statistically accurate to plus or minus 3.7 percent 19 times in 20.

‘Hard Landing’

In October, the Bank of Canada (BoC) forecast a Christmas recession. “The pace of economic growth in Canada is slowing and is expected to moderate further. Growth is projected to essentially stall later this year and through the first half of 2023,” the central bank said in its “Monetary Policy Report.”

The Department of Finance Canada has similarly predicted a downside economy in its “Fall Economic Statement,” published on Nov. 3.

“Interest rates are rising as the central bank steps in to tackle inflation. And that means our economy is slowing down,” said Finance Minister Chrystia Freeland in the report’s foreword.

On Oct. 26, the BoC raised the interest rate by 50 basis points to 3.75 percent. The hike marks the sixth consecutive time the central bank has increased its overnight rate target this year. The bank plans to announce another rate decision on Dec. 7.

The finance department said in its report that it has developed a “downside scenario” that takes into consideration the impact of “more persistent inflationary pressures” and “further tightening in monetary policy,” which leads to a “hard landing” in the economy.

“In this scenario, elevated inflation becomes more deeply entrenched, particularly in the U.S., leading central banks to raise interest rates by more than anticipated to return inflation to target,” said the economic statement.

“This increases long-term interest rates and leads to a significant tightening in global financial conditions. Tighter financial conditions result in more adverse effects on confidence, wealth, and activity, resulting in a sharper correction in housing markets and consumer activity in Canada, as well as larger spillovers from tightening and weaker economic activity in other countries.”

Rahul Vaidyanath contributed to this report.