Business Barometer®: Small business confidence stays weak and the list of challenges long amid softening demand, price and wage plans
Toronto, August 31, 2023 – The share of businesses reporting that insufficient domestic demand is dampening their growth has reached 40%, the highest point since February 2021, according to the latest Canadian Federation of Independent Business (CFIB) Business Barometer®. The insufficient domestic demand indicator has been on an upward trend since its low of 21% in June 2022, and has now surpassed its historical average of 36%.
“More and more small businesses have been reporting soft domestic demand in the last few months, adding to the many signs pointing to a clear deceleration of the Canadian economy,” said CFIB’s chief economist and vice-president of research Simon Gaudreault. “This should help keep inflation on a downward path towards the Bank of Canada’s 1% to 3% target range.”
Businesses’ price and wage plans for the next 12 months also support the expectation of a gradually receding inflation. They were sitting at 3.0% and 2.5% respectively in August, sharply down from their mid-2022 peaks of 4.9% and 3.6%, and continue to close the gap with their historical averages of 2.1% and 1.8%.
“Compared to the middle of last year, the share of businesses that plan to raise wages and prices by 6% or more has dropped by almost two thirds, and overall distributions are slowly trending towards their pre-pandemic shares,” said Laure-Anna Bomal, CFIB economist. “At this rate, businesses should get back to the overall price and wage plans they typically reported before inflation started flaring up last year soon, which would be good news for everyone concerned about the level of current and future interest rates.”
At the same time, CFIB’s Business Barometer long-term index shows entrepreneurs’ optimism is scarce, while other indicators signal a lot of challenges remain for businesses in the current economic environment.
The long-term index made no meaningful progress nationally in August (54.8). With an index level nearer 65 normally indicating that the economy is growing at its potential, there is still a lot of room for improvement.
Only three provinces, Prince Edward Island (68.4), Nova Scotia (60.2) and Alberta (59.8), were in line with more normal optimism levels this month.
Agriculture (42.0), retail (47.1) and transportation (51.3) businesses had the lowest levels of confidence, while those in the information and recreation (67.0), health and education (63.9) and finance, insurance, real estate and leasing (63.2) sectors topped the rankings.
Several other indicators highlighted the currently tough business environment:
- More businesses (51% or +4% compared to July) reported that shortages of skilled labour limited their growth, a share that has been stuck close to a historical high recently.
- Near-record shares of businesses indicated insurance (60%) and borrowing costs (41%) were causing difficulties to their operations.
- A total of 16% of businesses were dealing with product distribution constraints, markedly up from the previous month and a likely ripple effect of the recent strike at BC ports.
“The August data looks like a case of ‘glass half-empty/glass half-full' for small business owners. While the softening of demand, price and wage plans could be good news on the inflation front and for businesses reeling from high costs, many will also suffer if consumers decide to close their wallets again. Moreover, several challenges such as taxes, labour shortages and even supply chain issues are still getting in the way of a full recovery, so it’s no surprise that the long-term business confidence remains subdued. With many under financial pressure, entrepreneurs will now turn to the last few months of 2023 and hope for the long-awaited return of decent business conditions in Canada,” Gaudreault concluded.
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Dariya Baiguzhiyeva, CFIB
August Business Barometer®: August findings are based on 464 responses from a stratified random sample of CFIB members, to a controlled-access web survey. Data reflect responses received from August 3 to 14. Findings are statistically accurate to +/- 4.5 per cent, 19 times in 20. Every new month, the entire series of indicators is recalculated for the previous month to include all survey responses received in that previous month. Measured on a scale between 0 and 100, an index above 50 means owners expecting their business’s performance to be stronger over the next three or 12 months outnumber those expecting weaker performance. An index level near 65 normally indicates that the economy is growing at its potential.
The Canadian Federation of Independent Business (CFIB) is Canada’s largest association of small and medium-sized businesses with 97,000 members across every industry and region. CFIB is dedicated to increasing business owners’ chances of success by driving policy change at all levels of government, providing expert advice and tools, and negotiating exclusive savings. Learn more at cfib.ca.