Canadian small business confidence drops in October as COVID-19 cases rise

Brett Bundale
·3 min read

Small business confidence appears to be an inverse function of the COVID-19 case count, with a new report finding the outlook of entrepreneurs fell in October just as the pandemic's second wave tracked upward.

The Canadian Federation of Independent Business said Thursday its latest business barometer, which measures the outlook of entrepreneurs, fell six points in October to hit a five-month low of 53.3.

The results suggest that after a rebound in economic activity and optimism over the summer months, the new wave of the pandemic weakened the outlook of entrepreneurs.

Business confidence was lowest in Quebec at 42.2, while entrepreneurs in Nova Scotia were the most upbeat with a reading of 63.1 – results that again appear influenced by the severity of the second wave in those provinces.

By industry, 10 out of 13 sectors recorded lower confidence in October, with businesses in hospitality, transportation and personal services the least optimistic about the year ahead.

CFIB chief economist Ted Mallett said the decline in business sentiment is broad-based.

"We've known for a long time that businesses would react negatively to any resurgence in the virus as well as to measures that governments take to help bring things back under control," he said in an interview.

"That's really being reflected in the kinds of things that we're hearing from our membership."

The business barometer also found that after steady gains over the spring and summer, the "capacity utilization" of businesses – how much work they're doing relative to what they could do at full capacity – has plateaued at about 70 per cent.

But the CFIB found a wide variation between companies, with one in five business running at full tilt while another third are running at 30 per cent capacity or less.

"When firms are only at 70 per cent capacity, it means that they've got the same high overhead but without the same revenues," Mallett said. "That's why we've been really been pushing for help on rent relief and wage subsidies."

In preparing its monthly business barometer, the CFIB asks small businesses across Canada how they expect to be performing a year from now.

The results are used to create an index, with the highest possible result of 100 indicating all businesses expect their business to be in better shape in 12 months, while zero means all businesses think they'll be in worse shape.

The index of 53.3 reported this month means businesses expect to be in about the same shape in a year, a result Mallett said is negative for entrepreneurs hoping to grow their businesses.

"Small business owners really want their businesses to be in better shape 12 months from now," he said. "The fact that we're back down to the 50 per cent mark suggests that there's still some considerable financial uncertainty for small firms."

This report by The Canadian Press was first published Oct. 29, 2020.

Brett Bundale, The Canadian Press