Canada's small business owners were in a brighter mood in July, according to the latest data from the Canadian Federation of Independent Business (CFIB). The group's Monthly Business Barometer rose to 58.3, a notable improvement from June's reading. But the optimism wasn't shared across all sectors: manufacturing confidence remained stuck at 53.7, as high fuel and input costs continued to bite.
What the Numbers Mean
The CFIB barometer is a survey-based index that measures how small business owners feel about the economy and their own prospects. A reading above 50 means more owners are optimistic than pessimistic. The July survey, conducted from July 7th to 13th among 520 CFIB members, showed a broad-based improvement of about eight points from June. However, the manufacturing sub-index barely budged, staying at 53.7 — a level that CFIB says has not properly recovered since 2023.
The timing of the survey is important: it was taken before the latest round of US tariffs on Canadian goods was announced. Those tariffs, which have escalated tensions between the two countries, have hit manufacturers particularly hard. CFIB has noted that the tariff impact on the sector has been more severe than the 2008-09 recession or the COVID-19 pandemic.
Why Manufacturers Are Struggling
Manufacturers face a double squeeze. On one side, fuel and input costs remain elevated, eating into profit margins. On the other, the threat of tariffs — including the recent 50% tariff threats — creates uncertainty for businesses that rely on cross-border supply chains. Even before the latest tariffs were announced, the sector was already feeling the pressure. CFIB's data shows that manufacturing confidence has been in a prolonged slump, unlike other parts of the small business economy that have shown more resilience.
The broader economic backdrop adds to the challenge. Canada's inflation rate eased to 2.8% in June, as gas prices dropped, but core price pressures remain. That means the Bank of Canada may keep interest rates higher for longer, which can dampen demand for manufactured goods. At the same time, the Canadian dollar — the loonie — has been under pressure, dipping as inflation slowed and rate hike bets faded.
What It Means for Investors
For everyday investors, the divergence between small business confidence and manufacturing sentiment is a signal worth watching. A rising barometer across most sectors suggests that the broader economy may be stabilizing, which could support corporate earnings and stock prices. The TSX, for example, has shown resilience, recently rising 1.17% even as new tariffs were announced.
But the manufacturing weakness is a red flag. If the sector continues to struggle, it could weigh on employment, exports, and overall economic growth. Investors with exposure to Canadian manufacturing stocks — or to sectors that depend on industrial demand, like transportation and materials — should keep an eye on how the tariff situation evolves. The US has already threatened additional tariffs, and any escalation could further pressure the sector.
On the positive side, the improvement in small business confidence outside manufacturing suggests that consumer-facing businesses — like retail, hospitality, and services — may be faring better. That could be a tailwind for stocks in those areas, especially if the Bank of Canada eventually cuts rates.
What to Watch Next
Investors should monitor upcoming CFIB surveys to see if the manufacturing reading improves or deteriorates further. Also key: any developments in US-Canada trade talks. The threat of 50% tariffs remains a live issue, and a resolution — or escalation — could have a significant impact on Canadian small businesses and the broader economy.
For now, the July data offers a mixed picture: optimism is creeping back into the small business sector, but the factory floor remains a worry. For investors, the takeaway is to stay diversified and keep an eye on trade policy, which could be the deciding factor for Canada's manufacturing recovery.
