In November, the Canadian Federation of Independent Businesses (CFIB) recorded the highest small business confidence rating in two years. The CFIB report showed a four-point upward movement from its long-held index, almost reaching the historical standard. However, the brightened optimism might come with some stormy challenges in the future.
Unfortunately, events that could potentially change the picture happened after the data collection period. Among those events was the imposition of newly elected U.S. president Donald Trump’s 25 per cent tariffs on imports from Canada and Mexico. In addition, there were 55,000 Canada Post workers on strike; this disrupted the most important shipping channel of many small businesses.
For the short-term future confidence among small business owners is unlikely to experience a dramatic drop. About two-thirds of small business establishments in Canada operate in a domestic market, which makes them somewhat insulated from the immediate impacts of international tariffs. Many owners are, therefore, not inclined to reassess the situation until real performance changes occur.
Changes in external circumstances have taken a long time in what is now the prevailing theory; for example, business sentiments start to impact higher interest rates. For example, the news about increasing rates did not affect optimism much, this changed in later months as the true financial impact came home. Similarly, those businesses will feel the effects over a period of time as the tariffs and shipping de facto changes start affecting them.
The CFIB outlines the volatile short-term optimism for the year 2024. In fact, the three-month outlook was much more erratic than that of the 12-month perspective; short-term confidence is at 51.4, significantly lower than the 12-month index of 59.7. This chasm reflects the hesitation that many business owners experience about their immediate challenges.
The relative stability in the supply chain and inflation has made things seem pretty predictable for these owners, but pending U.S. tariffs and postal interruptions could ratchet up the gap in short- and longer-run optimism. Businesses that either export into the U.S. or depend heavily on the postal system for their logistics might be hit the hardest.
Canadian officials are looking for solutions to counter the impact of Trump’s tariffs, which could maintain the current optimism. It is also suspected that while small businesses may take a small hit, they will gradually return to normal as they come to grips with the changes.
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