The share of businesses reporting that insufficient domestic demand is dampening their growth has reached 40%, the highest point since February 2021, according to the latest Canadian Federation of Independent Business (CFIB) Business Barometer.
The insufficient domestic demand indicator has been on an upward trend since its low of 21% in June 2022, and has now surpassed its historical average of 36%, it said.
“More and more small businesses have been reporting soft domestic demand in the last few months, adding to the many signs pointing to a clear deceleration of the Canadian economy,” said CFIB’s chief economist and vice-president of research Simon Gaudreault. “This should help keep inflation on a downward path towards the Bank of Canada’s 1% to 3% target range.
“The August data looks like a case of ‘glass half-empty/glass half-full’ for small business owners. While the softening of demand, price and wage plans could be good news on the inflation front and for businesses reeling from high costs, many will also suffer if consumers decide to close their wallets again. Moreover, several challenges such as taxes, labour shortages and even supply chain issues are still getting in the way of a full recovery, so it’s no surprise that the long-term business confidence remains subdued. With many under financial pressure, entrepreneurs will now turn to the last few months of 2023 and hope for the long-awaited return of decent business conditions in Canada,.”
The CFIB report said businesses’ price and wage plans for the next 12 months also support the expectation of a gradually receding inflation. They were sitting at 3.0% and 2.5% respectively in August, sharply down from their mid-2022 peaks of 4.9% and 3.6%, and continue to close the gap with their historical averages of 2.1% and 1.8%.
“Compared to the middle of last year, the share of businesses that plan to raise wages and prices by 6% or more has dropped by almost two thirds, and overall distributions are slowly trending towards their pre-pandemic shares,” said Laure-Anna Bomal, CFIB economist. “At this rate, businesses should get back to the overall price and wage plans they typically reported before inflation started flaring up last year soon, which would be good news for everyone concerned about the level of current and future interest rates.”
Other key findings in the CFIB report include:
- The long-term index made no meaningful progress nationally in August (54.8). With an index level nearer 65 normally indicating that the economy is growing at its potential, there is still a lot of room for improvement;
- Only three provinces, Prince Edward Island (68.4), Nova Scotia (60.2) and Alberta (59.8), were in line with more normal optimism levels this month;
- Agriculture (42.0), retail (47.1) and transportation (51.3) businesses had the lowest levels of confidence, while those in the information and recreation (67.0), health and education (63.9) and finance, insurance, real estate and leasing (63.2) sectors topped the rankings;
- More businesses (51% or +4% compared to July) reported that shortages of skilled labour limited their growth, a share that has been stuck close to a historical high recently;
- Near-record shares of businesses indicated insurance (60%) and borrowing costs (41%) were causing difficulties to their operations; and
- A total of 16% of businesses were dealing with product distribution constraints, markedly up from the previous month and a likely ripple effect of the recent strike at BC ports.
Mario Toneguzzi is Managing Editor of Canada’s Podcast. He has more than 40 years of experience as a daily newspaper writer, columnist, and editor. He was named in 2021 as one of the Top 10 Business Journalists in the World by PR News – the only Canadian to make the list)
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