Small business sentiment deteriorated sharply in May as the ongoing war in Iran and oil price shock reversed April’s modest improvement based on the latest Canadian Federation of Independent Business data. According to its Business Barometer, the 12-month outlook index fell to 46.3 points from 58.5 in April, while the three-month outlook declined to 47.9 from 55.4. Both measures are now below the 50-point threshold, indicating that firms expecting weaker performance outnumber those expecting stronger performance. The readings are also well below the level typically associated with a moderate growth economy (65 points), pointing to subdued business activity and weaker expectations for sales, investment and hiring.

The decline was broad-based. CFIB reported that all provincial indices weakened over both the 12-month and three- to four-month horizons, while long-term confidence also declined across industries. By industry, the largest drops in long-term confidence were reported in retail, hospitality, and health and education. This suggests the May pullback was not limited to trade- or energy-exposed sectors, but extended into consumer-facing and service industries as weak demand and elevated costs weighed more broadly on expectations. Education has also borne the brunt of migration caps by the federal government. Cost pressures remained elevated, led by fuel costs at 72 per cent, tax and regulatory costs at 64 per cent, insurance costs at 60 per cent, and wage costs at 60 per cent.

Consistent with the national pattern, B.C. small business confidence weakened in May. The province’s 12-month outlook index fell below neutral to 47.4, down from 56.5 in April, while the three-month outlook stood at 58.5. Hiring plans also deteriorated. In May, 14 per cent of B.C. firms planned to increase full-time staffing, while 17 per cent expected to reduce staffing, leaving net hiring intentions at negative three points, which was weaker than the national balance.

Tepid labour market conditions remained a key theme for B.C.’s economy in 2026. The latest data from the Survey of Employment, Payroll and Hours (SEPH) showed a retrenchment in payroll counts in March of 0.2 per cent (-6,000 positions) month-over-month (m/m) decline. Year-over-year (y/y), positions decreased by 0.1 per cent (-2,000 positions). Tepid growth in payrolls aligns with recent trends in StatCan’s Labour Force Survey, which has shown deeper declines this year.

In March, excluding unclassified businesses, payroll counts in the goods-producing sector decreased by 0.3 per cent (-980 positions) m/m. Positions in the manufacturing sector increased by 0.3 per cent (+399 positions). The utilities sector dropped sharply by 2.7 per cent (-3,555). Positions increased in the forestry, logging and support by 0.5 per cent (+72) m/m but plunged 7.2 per cent y/y reflecting the sectoral downturn recently amplified by U.S. tariffs. As for the construction sector, positions dropped by 0.3 per cent (-591) m/m. In contrast, employment in the mining, quarrying, and oil and gas extraction sector fell by 1.8 per cent (-526 positions) m/m but rose 5.2 per cent (+1,400 positions) y/y.

Payroll counts in the larger services sector declined by 0.1 per cent (-2,800 positions) m/m in March. Positions in the management of companies and enterprises sector continued to strengthen, rising 1.7 per cent (+291) m/m and 12.6 per cent (+2,000) y/y. This marked a fourth consecutive monthly increase following a decline in November. The strong y/y gain suggests improving demand for corporate management, head office, and enterprise support functions, which may point to stronger business confidence, firm expansion, or increased organizational activity.

Average weekly earnings dropped slightly by 0.1 per cent m/m to $1,348.36 and were up by 3.5 per cent y/y, above the national average at $1,333.23. Still, wage momentum has moderated from earlier highs, consistent with signs of cooling labour demand. B.C.’s job vacancy rate remained at 3.3 per cent in March.

Bryan Yu is chief economist at Central 1.