Small business confidence reaches one of its lowest levels ever heading into the holiday season

Small business confidence took a dip in the lead-up to the holiday shopping season and looking beyond it, according to the latest Canadian Federation of Independent Business (CFIB) Business Barometer released on Thursday.

The national organization said the optimism index for the next three months dropped to 43.8, while the 12-month index dropped to 50.0 index points. The 12-month index level is the lowest recorded since 2009, outside of the 2008/2009 and 2020 recessions.

“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,” said Simon Gaudreault, Chief Economist and Vice-President of Research at CFIB. “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 is Canada’s largest association of small and medium-sized businesses with 95,000 members across every industry and region.

Other key findings from this month’s Barometer include:

• 38% of businesses say they are in good shape and 18% say they are in bad shape, a net positive of+20% that is down from the +22% of October, but better than the +17% of November 2021;
• Average price increase plans slipped to 3.9%, continuing their downward trend since June, while wage increase plans saw an uptick to 3.4% and remained historically elevated.;
• Full-time staffing plans are in the negative, with slightly more businesses (18%) looking to lay off than to hire (17%) over the next few months, which is in line with seasonal patterns.

“Small businesses are feeling the pinch of a slowing economy and higher than ever costs of doing business and for many the usual boost they expect to see from holiday sales is not looking as promising this year,” said Andreea Bourgeois, Director of Economics at CFIB. “With the big shopping events – Black Friday, Small Business Saturday and Cyber Monday – approaching this weekend, this is another reminder to support local businesses.”

The CFIB said the retail sector posted the second lowest optimism level on the three-month index (36.5) and the third lowest on the 12-month index (43.6). “While the former might be in part due to seasonality as business owners project themselves past the holiday season, the latter is a level not seen for that sector since the 2020 recession. Businesses in the financial services sector were the least optimistic over both time horizons, with agriculture businesses also bringing up the rear. Both the short-term (69.2) and longer-term (68.9) optimism levels for the arts/recreation/information sector remained quite solid and at the top of the list,” said the report.

The national organization said borrowing costs are causing difficulties for 35% of business owners, compared to 16% in November 2021. Fuel and energy is the top factor limiting business growth for 71% of businesses, while shortages of skilled or semi-/unskilled labour continue to limit business growth for 53% and 38% of businesses, respectively.

Ksenia Bushmeneva, Economist with TD Economics, said small business confidence continued to ebb in November.

“Both the near-term and longer-term outlook deteriorated for the third consecutive month. The near-term outlook has remained below the 50-point threshold since September, indicating that more firms expect their business performance to deteriorate than improve over the next three months. The 12-months ahead outlook remained barely in expansionary territory and at a low level. It has only been lower during the early days of the pandemic and the Global Financial Crisis,” she said.

“It’s not surprising that small businesses are feeling downbeat. Many firms remain concerned about cost pressures, such as the high cost of fuel, rising wages and borrowing costs. At the same time, labour shortages and supply chain issues remain challenges. Rising financial pressures have led to an increase in the number of businesses filing for insolvency this year. Year-to-date fillings are up by 37% relative to the same period last year, but remain 13% below their pre-pandemic level in 2019.”