Flat confidence reading good for investors?

The CFIB Business Barometer, which uses a scale of 0 to 100 to measure how companies feel about their expected performance, recorded its fourth straight month of decline. In boom times an index level reads between 65 and 70, but as the optimism of small business owners continues to fall, the index is currently at its lowest level in three years at just 58.6.

Jacques Marcil, Senior Economist at TD Economics confirms that Canada’s prospects – at least for the short term – are limited.

“In addition to the continuing difficulties in Europe and the sluggish recovery in the U.S., elevated household debt levels in Canada will keep personal spending growth in check in the near to medium term”, he said.

Compared to the GDP, the index indicates that Canada’s economy could be grinding to a halt. But in addition to the soaring rate of household debt and current unemployment rate, small business owners now fear Flaherty’s new mortgage rules will cripple spending even further.

That could retard home buying for many Canadians if employer pessimism leads to job cuts and prevents new hires. That itself would add to the number of renters and tightening the vacancy rate in many cities.

The mortgage rules have added to the kind of pessimism that may scuttle home purchases.

Stipulations such as the reduced amortization period and the borrower`s ability to only borrow 80% of a home’s value mean many Canadians will be tightening their belt. Purchases with a credit card or disposable income will take a back seat to making all-important mortgage payments, leaving many small companies worried about their own financial future. Business owners in fields such as natural resources, manufacturing and financial services were less pessimistic, but retailers have a gloomy outlook on the months ahead.

Although the new mortgage regulations aim to create fiscal stability in the long run, short-term economic growth is expected to remain stifled. Like the optimism of so many small businesses in Canada, consumer spending now too may be on the outs.

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