Canada’s CFIB small business index drops slightly in September, likely to gain moderately ahead

Canada’s CFIB Business Barometer index dropped slightly in September. The index fell to 59 in the month, falling 0.8 points. The sentiment reading is 3 points more than last year; however, it is still comparatively low as compared to previous years. In the past six months, the sentiment has stabilized in a narrow range of 58 to 60.

Sector wise, readings came in mixed. Sentiment dropped in seven sectors, while it rose in six sectors. In hospitality sector, the sentiment dropped sharply by 9.4 to 51.9, the least optimistic sector in September. Meanwhile, manufacturing sector registered a sharp rise in sentiment. It rose by 11 points to 66.5 and was the most upbeat sector in the month.

Sectors recording rise in sentiment included information, arts and recreation, professional and business services, and finance, insurance and real estate. No sectors in the month came in the contraction territory; however, sentiment in transportation, hospitality and agriculture were still close to the 50-point mark, noted TD Economics.

Region wise, there was a widespread drop in confidence as sentiment readings dropped in seven of the 10 provinces. Quebec, Prince Edward Island and British Columbia had the highest points, whereas Saskatchewan, Alberta, Newfoundland and Labrador were in the bottom spots.

Worries regarding foreign currencies continued to fall; however, employment plans remain at cyclical lows with just 16.5 percent of SMEs anticipated to add employees in the next three to four months.

The slight drop in September’s sentiment does not actually move the needle, said TD Economics. Significantly, the underlying trend of the past six months indicates towards sentiment stabilizing close to the 60-point mark. Alongside the headline figure, certain underlying indicators such as foreign currency costs and insufficient domestic demand, have also recorded an improvement on a trend basis, stated TD Economics. However, other indicators suggest an underlying fragility and imply that small businesses are going ahead with caution as plans for capital expansion and employment continue to be weak as compared with earlier years.

As the Canadian economy is set to expand at an annualized pace of sub-2 percent from now, it suggests just moderate increases in confidence ahead, according to TD Economics. Some part of the growth profile depends on resumption in export growth.