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Small Business Confidence Hits All-Time Low in Canada as Consumer Demand Declines

Recent data from the Canadian Federation of Independent Business (CFIB) reveals that small business confidence in Canada has reached its lowest point since the COVID-19 pandemic started. The decline is attributed to a decrease in consumer demand, causing more business owners to feel less confident as they enter the holiday season.

The CFIB’s latest business barometer for this month shows that the 12-month small business confidence index dropped 1.5 points to 47.2, marking the lowest reading since April 2020 and the third lowest in almost 15 years. Normally, an index level around 65 indicates that the economy is growing at its full potential.

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“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,” stated Simon Gaudreault, CFIB’s chief economist and vice president of research. He emphasized the various challenges small businesses currently face, including inflation, financial pressures, labor difficulties, and overall uncertainty.

The CFIB survey reveals that the number of businesses reporting insufficient domestic demand has increased from 39% in September to 43% this month. Additionally, companies have been dealing with unfilled orders and have had to adjust inventory levels accordingly. The survey found that 66% of businesses currently have normal or above-normal inventory levels, which is lower than the historical average of 80%.

Among the sectors, the retail industry exhibits particularly low business confidence, with a 3.4-point drop to 40.7%. This pattern aligns with other surveys indicating a weaker outlook for the Canadian economy.

The Bank of Canada’s latest quarterly business outlook survey also reveals a dwindling business sentiment, reaching its lowest point since the early days of the COVID-19 pandemic in 2020. Several business executives have indicated a slowdown in economic activity based on various indicators.

The bank’s report states, “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.”

In light of these economic weaknesses, the Bank of Canada decided to maintain its benchmark interest rate, which the CFIB highlighted as “welcome news” for struggling small businesses trying to manage their finances and improve consumer confidence.

To gather these findings, the CFIB’s monthly business barometer survey collected responses from 596 online participants who are part of the business group. The survey holds a margin of error of +/- 4% and a confidence level of 95%.

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

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