Slump in Canadian Small Business Confidence Signals Slowdown

Sentiment among Canada’s small businesses fell to the lowest in five months after a resurgence of Covid-19 cases prompted another round of closures and containment measures.

The Canadian Federation of Independent Business index -- which measures confidence among small firms in Canada -- fell almost six points in October to 53.3, the biggest decline since March, when lockdowns were first imposed, and the lowest reading since May, when the economy was just beginning to reopen.

October’s reading coincides with a second wave of Covid-19, which has led some provinces to reimpose restrictions to contain the spread. It foreshadows a sharp slowdown in the Canadian economy in the fourth quarter, and joins other indicators pointing to a similar trend in consumer confidence and spending.

“The jump in COVID-19 cases is cause for anxiety in the small business sector, especially as some regions have renewed restrictions on businesses in the hospitality and personal services sectors, but the decline in optimism is pretty broad based,” said Ted Mallett, CFIB’s chief economist.

Slump in Canadian Small Business Confidence Signals Slowdown

Small- and medium-sized firms account for a disproportionate share of Canadian employment, and declining confidence suggests trouble ahead for the country’s labor market. Businesses with fewer than 100 employees accounted for almost two thirds of total employment as of September, according to Toronto-Dominion Bank.

“Following a brisk rebound in activity over the summer months fueled by economic re-opening and low case counts, we are entering a more challenging and uncertain stretch of the recovery,” Ksenia Bushmeneva, an economist at Toronto-Dominion Bank said in a report to investors. “Given lingering uncertainty, monetary and fiscal policy will need to remain accommodative and flexible in the months ahead.”

Sentiment fell in seven out of 10 provinces, the CFIB said. New Brunswick, Alberta and Ontario saw the largest monthly declines. Most industries reported a decline in confidence, with health and education services and transportation -- two sectors where physical distancing is difficult -- hardest hit.

In October, businesses were operating just under 71% capacity, with no improvements since August, the CFIB report said.

Staffing intentions worsened, with 28% of businesses planning to decrease full time staff in the next three months, and only 12% planning to increase staff.

©2020 Bloomberg L.P.

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