Small business confidence hits lowest level since COVID-19 onset: CFIB

In this Sept. 2, 2020 photo, aassers-by walk past a business storefront with store closing and sale signs in Dedham, Mass.  The coronavirus and the drastic measures put in place by government officials to try to control its spread had a severe toll on many small businesses in the U.S.  (AP Photo/Steven Senne)

Small business confidence has hit its lowest reading since the onset of the COVID-19 pandemic as consumer demand wanes in Canada. (AP Photo/Steven Senne)

Small business confidence has hit its lowest reading since the onset of the COVID-19 pandemic, according to new data from the Canadian Federation of Independent Business (CFIB), as consumer demand wanes in Canada.

The CFIB found in its latest business barometer from this month that more business owners are feeling less confident going into the holiday season. The 12-month small business confidence index dropped 1.5 points to 47.2, the lowest reading since April 2020 and the third lowest reading in nearly 15 years. The CFIB says an index level of around 65 normally indicates that the economy is growing at its full potential.

“While our (quarterly) forecasts indicated last week that the economy will narrowly avoid a recession in the second half of this year, many signs still point to a lot of trouble for small businesses,” Simon Gaudreault, CFIB’s chief economist and vice president of research, said in a news release.

“We’re hearing from many businesses that they’re at full capacity and busy, but they’re not making a profit either. Inflation, financial pressures, labour challenges, uncertainty: name a business challenge and it’s happening in Canada right now.”

The CFIB survey found that the number of businesses reporting insufficient domestic demand has been on the rise, increasing from 39 per cent in September to 43 per cent this month. The survey noted that many companies have reported having unfilled orders and have had to adjust inventory levels accordingly. According to the survey, 66 per cent of companies said they have normal or above normal inventory levels, down from the historical average of 80 per cent.

Business confidence is particularly low in the retail sector, with confidence dropping 3.4 points to 40.7 per cent.

The report is the latest survey to show a weaker outlook for the economy among Canadian businesses.

The latest quarterly business outlook survey from the Bank of Canada also showed that business sentiment fell to its weakest level since the early days of the COVID-19 pandemic in 2020. Business executives said economic activity has slowed according to a broad range of indicators.

“Businesses reported that demand has slowed, contributing to weak sales growth over the past year,” the central bank said in its report released on Oct. 16, noting that the slowdown in demand is widespread across regions and sectors.

“Firms expect growth in demand to continue to be subdued, with indicators of future sales (e.g., order books, sales inquiries) low relative to their historical norms.”

Amid the growing signs of weakness in the Canadian economy, the Bank of Canada opted to leave its benchmark interest rate unchanged on Wednesday, something the CFIB noted in a release will “certainly be welcome news” for small businesses struggling with their finances and consumer confidence.

The CFIB’s monthly business barometer survey was based on 596 online responses from business group members, with a margin of error of +/- 4 per cent, 19 times out of 20.

Alicja Siekierska is a senior reporter at Yahoo Finance Canada. Follow her on Twitter @alicjawithaj.

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