Canadian small business owners are treading water. The Canadian Federation of Independent Business (CFIB) reported that its long-term Business Barometer held steady at 50.0 in October, while the short-term index remained at 45.3. These readings sit right at or below the federation's rough "breakeven" line, meaning the small business sector is neither expanding strongly nor contracting sharply—but it's clearly not thriving.
What the numbers show
CFIB's Business Barometer is a monthly survey that asks small and medium-sized business owners about their expectations for the next 12 months. A reading of 50 is considered the dividing line between optimism and pessimism: above 50 suggests more owners expect better times ahead, while below 50 points to a majority bracing for tougher conditions. October's long-term reading of 50.0 is exactly at that threshold, while the short-term index—which looks at the next three to four months—remains below it at 45.3.
The report highlights that weak demand is the dominant challenge. Half of the surveyed business owners cited weak demand as their top barrier to growth, a figure that underscores how cautious consumers and businesses remain. At the same time, 43% still point to skilled labor shortages as a major constraint, even as hiring plans have cooled significantly.
Hiring intentions hit a pandemic-era low
Perhaps the most striking detail in the October data is the shift in hiring expectations. According to CFIB, 22% of small businesses plan to reduce their workforce over the next few months, while only 11% intend to add staff. That net reading—negative 11 percentage points—is the weakest since the COVID-19 pandemic. It suggests that many small firms are hunkering down, focusing on cost control rather than expansion.
Wage and price plans have also cooled. Fewer businesses are planning to raise wages or increase prices, which could be a sign that inflationary pressures are easing from the small business perspective. However, it also reflects a cautious outlook: if demand is weak, owners have less pricing power and may be reluctant to commit to higher labor costs.
Why this matters for investors
For everyday investors, small business confidence is a useful gauge of the broader economy. Small and medium-sized enterprises make up a significant share of Canadian employment and economic activity. When they pull back on hiring and investment, it can ripple through the job market and consumer spending.
The weak hiring intentions are particularly notable. If small businesses are cutting jobs, that could weigh on household incomes and spending, which in turn affects larger companies' revenues. Investors watching Canadian stocks, especially in consumer-facing sectors, may want to keep an eye on these trends.
The cooling in wage and price plans could also be relevant for the Bank of Canada. With inflation still above target, the central bank has been cautious about cutting interest rates. But if small businesses are signaling less pricing pressure, that might give policymakers more room to consider easing in the future. For context, the Canadian dollar has been sensitive to rate expectations, so any shift in the outlook could have currency implications.
Context: a broader picture of caution
The CFIB report is not an isolated signal. Across the economy, there are signs that businesses are tempering their expectations. For instance, some large manufacturers are seeing a recovery, but that optimism hasn't fully reached the small business sector. Similarly, consumer demand is cooling in various markets, which aligns with the weak demand that Canadian small businesses are reporting.
It's also worth noting that small businesses often face higher borrowing costs than large corporations. With interest rates still elevated, the cost of financing inventory or expansion is a heavier burden. This may be one reason why hiring plans are so subdued.
What to watch next
Investors should monitor upcoming CFIB reports to see if confidence starts to recover. A sustained move above 50 would signal that small business owners are feeling more optimistic, which could be a positive for the economy. Conversely, a further drop could indicate that the sector is heading into a more pronounced slowdown.
Also watch for any changes in the Bank of Canada's policy stance. If the central bank signals that rate cuts are coming, that could provide a boost to small business sentiment. For now, the message from Canada's small businesses is clear: they're holding steady, but they're not ready to charge ahead.
