Canada’s small business sentiment rises in August, likely to gain moderately in coming months

Canada’s CFIB small business barometer rose in August, erasing a subdued reading of July. Small business confidence rose 2.2 points to 59.8, the second-highest monthly reading since May 2015. Even if the sentiment was around 3 points higher than this time last year, it continues to be slightly weaker in comparison to earlier years.

Looking past the monthly volatility, the trend that has appeared in the past few months is encouraging. The confidence has recovered from below-55 point readings at the start of this year to reach the 60 point mark in recent months in a short time period.

The positive or souring mood amongst the Canadian small businesses has been caused mainly by fluctuations in commodity prices. This is more evident in Alberta, where confidence has moved in lockstep with the crude oil price. Continued moderate rises in oil prices would help guarantee that sentiment continues to be high relative to the lows seen earlier in 2016.

Meanwhile, activity in reconstruction following the Fort McMurray wildfires and further household transfers provided by the Canada Child Benefit (CCB) payments would assist in giving and additional stimulus to sentiment and economic growth in the near-term, said TD Economics in a research note.

Overall, small business confident in Canada is expected to continue gaining moderately in the coming months. However, the odds of any considerably rebound continues to be low. Given that the Canadian economy continues to be in the process of a structural adjustment related to low commodity prices and expected  to expand just 2 percent annualized in the forecast horizon, it would take some time for business confidence to reach and maintain the levels seen earlier to the collapse in oil prices, stated TD Economics.

Sector wise, the August performance was mixed with sentiment increase in seven sectors and declining in six sectors. The highest level of optimism was seen in professional services, information, art and recreation and health and education services. Meanwhile, retail, manufacturing, construction and transportation sectors continue to indicate weakness. Only agriculture sector was in contraction territory in August.