The latest Main Street Quarterly report by the Canadian Federation of Independent Business (CFIB) in partnership with AppEco suggests that the Canadian economy contracted in the fourth quarter of 2023 (-0.2%) but is expected to rebound to 0.5% in the first quarter of 2024. However, most businesses are still considering increasing prices in 2024, but the average price hike is expected to be lower than in previous post-pandemic years at 3.1%, and fewer firms will be increasing prices than in previous years.
Consumer Price Index (CPI) inflation, both total (3.2%) and excluding food and energy (3.4%), receded in Q4 and is expected to stabilize in the first quarter of 2024. Still, forecasts of some of its classic measures remain just shy of the Bank of Canada’s inflation-control target range of 1 to 3%. Other measures of underlying inflation suggest that we are within range and closer to the 2% midpoint, indicating a downward trend.
Job Vacancies and Investment
The national job vacancy rate continued to decrease, with a slight drop (3.7%) in Q4, representing 523,000 unfilled positions, mainly because of low long-term small business confidence. In general, business owners are feeling pessimistic about their future due to the various cost pressures and tax increases weighing on them, making them less likely to invest in their businesses. Private investment plans are at their lowest level ever, having severely dropped by 12% compared to Q3.
Manufacturing Businesses and Domestic Demand
A special look at manufacturing businesses reveals that their optimism over the short and long term has been declining rapidly for the past two quarters. An increasing share of manufacturers also reports insufficient domestic and foreign demand.
Analysis by CFIB’s Chief Economist and Vice-President of Research
Simon Gaudreault, Chief Economist, and Vice-President of Research at CFIB believes that the current forecasts point to a short-lived contraction of the overall economy, with a return to positive growth in early 2024. However, the real recovery for the small business sector may arrive much later, given the enduring poor business environment. Although the economy experienced a mild technical recession according to the forecasts and official definitions, the story is a bit more nuanced than that. Some key macro indicators (sales, employment) continue to display a certain strength, while at the same time, others such as investment and optimism on Main Street (as reported in our latest monthly editions of the Business Barometer®) are weak.
Monetary Policy and Bank of Canada
Given the current slowdown, the breadth of challenges facing Main Street and the delayed effects of past interest rate hikes, Simon Gaudreault suggests that the Bank of Canada should seriously consider making monetary policy less restrictive as of next spring.
About AppEco
AppEco is a consulting firm specializing in economic and strategic analysis. The firm provides first-class services in applied economics, such as economic impact studies, surveys and polls, cost-benefit analyses, modeling, econometrics, and pricing, among others. Its mission is to provide useful services that contribute to economic growth and the success of clients’ projects. AppEco works with firms of all sizes, from small to multinationals, as well as governments and non-profit organizations.
About CFIB
The Canadian Federation of Independent Business (CFIB) is Canada’s largest association of small and medium-sized businesses with 97,000 members across every industry and region. CFIB is dedicated to increasing business owners’ chances of success by driving policy change at all levels of government, providing expert advice and tools, and negotiating exclusive savings. To learn more, visit cfib.ca.
The Canadian economy is expected to remain sluggish in the first quarter of 2024, with most businesses still considering increasing prices. The national job vacancy rate continued to decrease, with private investment plans at their lowest level ever, and manufacturers reporting insufficient domestic and foreign demand. Meanwhile, the Bank of Canada should seriously consider making monetary policy less restrictive as of next spring, according to CFIB’s Chief Economist and Vice-President of Research.
