Drop in small business optimism shows economic slowdown may be underway: CFIB

July 13, 2023 – After a seven-month upward streak, the small business optimism index for the next 12 months dropped 2.1 points, sitting at 54.1 in June, according to the latest Canadian Federation of Independent Business (CFIB) Business Barometer®. 

Atlantic Canada is doing relatively better than the rest of the country in June due to the start of the summer tourism season, with all four provinces reporting long-term confidence indexes above 60.

As for the sectors, retail posted the biggest decrease in long-term optimism (-10.8 index points to 44.3), remaining at the bottom of the optimism scale, while information and recreation (69.1) topped the sector rankings.

“National small-business optimism as measured through our index remains far below its historical average of 61. Meanwhile, other results from our tracking survey point to early signs of an economic slowdown,” said Simon Gaudreault, Chief Economist and Vice-President of Research at CFIB, in a news release. “Price, labour and demand indicators all show results consistent with an economy that is losing some of its steam.”

The Consumer Price Index dropped to 3.4 per cent in May, the lowest it’s been since June 2021. The Barometer also shows the pressure on average wage and price plans was less intense in June. The average price plans had one of the largest decreases this year, reaching 3.3 per cent. Small businesses expect to increase wages by an average of 2.9 per cent over the next 12 months. While still fairly high, both plans are on a clear downward trend since they peaked at this time last year.

This month’s Business Barometer suggests the labour market is somewhat cooling, with 45 per cent of businesses reporting that shortages of skilled workers are slowing them down, the lowest share in close to two years. For semi- or unskilled workers, the situation is more stable, with 34 per cent of firms signalling shortages stump their progress. Fewer employers (18 per cent) were looking to hire in the next three months, compared to May (22 per cent) or the same time last year (23 per cent).

“The demand for labour is usually stronger this time of year. Small business owners may be adjusting to labour shortages or cutting down on hiring, choosing instead to work more hours themselves or reduce their services. Immigration is also through the roof, meaning there’s an influx of candidates on the market. While they may not be immediately hired, it should ultimately help employers find qualified staff,” said Andreea Bourgeois, CFIB Director of Economics, in a news release.

The share of businesses reporting insufficient domestic demand reached 32 per cent, a high point in two years. It is on a clear upward trend since reaching a low point of 21 per cent in June 2022, and it is getting close to its historical share of 36 per cent. Results for the unfilled orders indicator also seem to be normalizing and gradually more firms are reporting unsold inventories.

“While one month does not make a trend and we still have a long way to go, several signs tell us we may finally be seeing some cooling of the economy,” Gaudreault noted.

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.