High costs challenge small businesses amid slower inflation

Rising costs and labour shortages are challenging small businesses, and entrepreneurs have a dim outlook as the year ends, the Canadian Federation of Independent Business (CFIB) says.

In a survey conducted in December, 73% of small businesses said fuel and energy costs were causing difficulties, while more than a third (36%) said they were affected by shortages in semi-skilled and unskilled labour, CFIB said in a release on Thursday.

The CFIB’s business barometer 12-month index, a measure of small business confidence, registered 50.9 index points (out of 100) in December — up a modest 0.9 from November and still a low level that is “usually only visited around recession periods,” the release said. (An index below 50 indicates that fewer business owners feel confident than negative about the next months.)

“Businesses have been through the wringer, so it’s not surprising they’re entering the new year with caution and anxiety,” said Simon Gaudreault, chief economist and vice-president of research with CFIB, in the release. “However, on the macro level, there may be some cause for optimism as we see some of the inflationary pressures continue their downward trend or at least somewhat settle in the last few months.”

Canada’s inflation rate dropped to 6.8% in November from 6.9% in October and from an annual high of 8.1% in July, while unemployment dropped to 5.1% in November from 5.2% in October. In early December, the Bank of Canada raised its key interest rate to 4.25% while signalling it may be ready to pause its aggressive rate hike cycle, given “growing evidence” that higher interest rates are restraining demand in the economy.

CFIB said on Thursday that supply chain indicators have shown continual improvement during 2022. But in addition to energy costs, small businesses struggle with the costs of insurance (64% of respondents), wages (61%), product inputs (49%), borrowing (37%), and capital equipment and technology (27%). Further, shortages of skilled labour affected 49% of small business respondents in December.

“Very high costs of doing business and a slowing economy are likely to challenge many businesses’ budgets and survival in the upcoming months,” Gaudreault said.

In December, business had returned to where it was before the pandemic. More than a third (38%) of entrepreneurs said their businesses were in good shape (the same proportion as in December 2019), and 17% described their situations as bad, up only slightly from 16% three years ago.

The business barometer findings for December were based on a web survey of a random sample of 620 CFIB members. Findings are statistically accurate to +/- 3.9% 19 times in 20.

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