Optimism among Canadian small businesses plummeted in May, falling to its lowest level since October 2025. Small businesses are expressing concern about the economy, demand and rising prices. Canada’s economy was already facing significant uncertainty given ongoing trade tensions with the US and the review of the Canada-United States-Mexico Agreement (CUSMA). Now, the conflict in the Middle East has raised oil prices, putting upward pressure on inflation, and raised concerns about the strength of economic activity.

• The Canadian Federation of Independent Business (CFIB) Business Barometer Index dropped to 46.3 in May from a downwardly revised 58.0 in the previous month. The index for both the short and long term dropped in May.
• Compared to the previous month, more businesses are finding the general business situation as bad. Fewer businesses expect to increase staffing.
• Small businesses cited fuel costs as their main cost constraint. In fact, plans to increase prices remained above 3% for a second straight month, which is historically on the higher side.
• The index also found that factors limiting sales or production growth has been soft demand and a shortage of skilled labour.
• In a separate report, the CFIB found that small businesses are finding it challenging to hire young workers. They are being hindered by soft demand and rising costs, which is creating a difficult environment to spend time to hire and train young workers.

The decline in sentiment is stemming from uncertainty caused by trade and geopolitical tensions, which has driven up prices. Resolving CUSMA and a potential end of the war might bring a bit more clarity to small businesses and eventually lift sentiment among the group. For now, small business optimism has waned but will eventually pick up along with Canada’s overall economy, which has proven to be resilient over its history.

If you would like to discuss this economic and market update or have questions about your finances and investments, please feel free to contact me anytime.