Small Business Sentiment in Canada has Rebounded

Small business confidence has bounced back after the abysmal levels seen earlier this year.

The 12-month small business confidence index has jumped 8.8 points reaching 56.4 in May, according to the latest Canadian Federation of Independent Business (CFIB) business barometer.

This marks a return to more seasonal levels and is on par with the reading recorded in May 2023.

“Small businesses are overall feeling cautiously positive heading into summer. Now that all the governments have tabled their budgets, business owners at least have some idea as to what to expect in the coming months. Their increased optimism could also be partly explained by (the) much-anticipated interest rate cut in June, and the cooling labour market,” says CFIB’s director of economics Andreea Bourgeois. “While some indicators of cost pressure and limitations on growth are still way above their historical averages, it’s still reassuring to see overall improvements in the small business sentiment.”

Canada’s long-term confidence is driven mostly by Ontario’s significant gain in optimism. The most notable changes are in the retail and transportation sectors; both have registered sizeable improvements of 4.9 and 4.7 points, respectively.

The average price and wage plan increases stabilized in May, with both indicators sitting at 2.8 per cent. The average price increase indicator shaved off the half point gained in April, and is almost on par with the March level.

May’s business barometer suggests labour market pressures are easing, with 45 per cent of businesses reporting a shortage of skilled labour, down from 47 per cent in April. Full-time and part-time hiring plans remained timid in May, but stronger than earlier in the year.

“While historically more businesses plan to hire ahead of the busy summer season, this year those hiring plans are more cautious but at least firms are not looking to lay off either,” says Bourgeois.

On the other hand, more than two-thirds of businesses reported struggling with high tax and regulatory costs. The share of businesses indicating high insurance costs has come slightly down to 68 per cent, after peaking at 72 per cent in April, but it still remains much higher than its historical average of 49 per cent.

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