Small biz confidence improves in July: CFIB

Small business sentiment improved in July, as revealed by the latest survey from the Canadian Federation of Independent Business (CFIB). Yet, the survey also indicated that businesses continue to face challenges — and that some may have closed their doors for good.

CFIB’s business barometer index had a reading of 61.3 in July — a level close to historical norms and up from 54.6 a month earlier. The reading is based on 12-month forward expectations for business performance.

Yet, the survey also captured other performance measures that were far from business as usual.

“Businesses are running at less than two-thirds capacity on average,” the report said. “Staffing, wage and capital investment plans continue to significantly trail historical norms.”

Only 22% of business owners said their businesses were in good shape — about half the usual proportion. And nearly 50% said insufficient domestic demand will limit sales or production growth — a figure little changed from the previous month.

To explain the overall normal July index reading, the report said business owners likely have much lower expectations for good performance 12 months out, so the index showed a “temporary overshoot profile during a recovery.”

The shorter-term three-month outlook was far less optimistic, with a reading of 40.8.

In a report analyzing the survey results, TD Economics said the wide gap between the 12-month and three-month expectations suggested “business confidence has a long way to go to full recovery.”

CFIB said July’s normal index reading was also likely attributable to an observed survivor effect.

“It appears a notable number of weaker businesses polled in the spring no longer responded to the survey in July,” the report said. “This suggests an acceleration of business exits between June and July.”

With that sober observation stated, the survey showed optimism rose in all provinces except Saskatchewan (−0.8 points to 58.3). Ontario had the highest index score (66), followed by Nova Scotia (62.4).

Quebec businesses remained the most pessimistic (39.6), while those in the remaining provinces remained mostly in the mid-50s.

Business sentiment also rose across most sectors, except finance, insurance and real estate (down 2.3 points to 58.3); agriculture (down 2.5 points to 42.8); and hospitality (down 0.3 points to 58.7). The retail sector showed a particularly large increase in optimism, hitting 62, up more than 11 points from the previous month as businesses began to reopen.

Looking ahead, the TD report said notable downside risks remain for businesses in the near term, including the recent uptick in Covid-19 cases in some provinces and the potential for waning government income support for households.

TD Economics also noted that any pullback in U.S. activity as a result of surging infection rates would weigh on Canadian exports and business activity.

About the CFIB business barometer: The July findings were based on 677 responses from a stratified random sample of CFIB members, to a controlled-access web survey. Data reflect responses received from July 2 to 20, 2020. Findings are statistically accurate to +/- 3.8% 19 times in 20.