Small Business Owners Losing Faith in Ability to Succeed

The number of small businesses in Canada that are reporting low domestic demand is dampening their growth has reached 40 per cent — an all-time high post-pandemic.

This is according to the latest business barometer report by the Canadian Federation of Independent Business (CBIB).

The insufficient domestic demand indicator has been on an upward trend since its low of 21 per cent in June 2022. The historical average is 36 per cent.

“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,” says 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 one per cent to three per cent target range.”

Businesses’ price and wage plans for the next 12 months also support the expectation of gradually receding inflation. They were sitting at three per cent and 2.5 per cent, respectively, in August, sharply down from their mid-2022 peaks of 4.9 per cent and 3.6 per cent, and continue to close the gap with their historical averages of 2.1 per cent and 1.8 per cent.

“Compared to the middle of last year, the share of businesses that plan to raise wages and prices by six per cent or more has dropped by almost two-thirds and overall distributions are slowly trending toward their pre-pandemic shares,” says CFIB economist Laure-Anna Bomal. “At this rate, businesses should soon get back to the overall price and wage plans they typically reported before inflation started flaring up last year, 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 climate. More than half of small businesses 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 and borrowing costs were causing difficulties to their operations, too.

“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,” says Gaudreault. “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 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.”