Improved business sentiment in the Bank of Canada’s third-quarter survey is a reading on sales and conditions among interviewed firms, not evidence that Canadian small businesses are hiring or that their costs have eased. Sentiment improved in the third quarter of 2026 after deteriorating in the second. Firms reported stronger past sales and better outlooks for domestic and export sales. Investment intentions eased slightly and remained robust. Hiring intentions stayed soft, and most firms planned to leave headcounts unchanged. Expected growth in input and selling prices moderated but stayed elevated. Most of those interviews happened before Canada–US trade talks broke down.
What the interviews covered
The Business Outlook Survey was released on October 19, 2026. In-person, video and phone interviews ran from August 6 to September 2. About three-quarters took place before Canada–US trade talks broke down and before new Canadian counter-tariffs were announced. The publication also uses July–September results from the monthly Business Leaders’ Pulse and July–August consultations on adapting to trade tensions.
The available text does not separate small firms from other businesses. A smaller employer can use the results as context, not as its own order book or payroll.
Timing is part of the result. The quarter’s better mood reflects answers gathered mostly before the later tariff news. Results collected after the breakdown point to more pressure on outlooks, costs and prices, and the available text summarizes those results rather than reprinting every answer.
Why sentiment and domestic sales improved
The Bank says the improvement was driven largely, at the time of the survey, by less drag from trade tensions and from geopolitical uncertainty related to the war in the Middle East. Higher input costs and war-related uncertainty still weighed on conditions, but reports of those pressures were less widespread than in the second quarter.
The share of firms planning or budgeting for a Canadian recession over the next 12 months fell from 17 percent to 6 percent, the lowest since the question was introduced in 2023. The Bank links that decline to improved sentiment early in the quarter. That share is not a recession forecast and is not labeled as a post-breakdown result.
The balance of opinion on indicators of future sales is now above its historical average. During the interviews, trade tensions, the Middle East war and related uncertainty weighed less on domestic sales outlooks than in the second quarter. Indirect effects on consumer confidence and on spending by tariff-affected businesses were also less severe.
The sector picture is narrower. Firms in consumer discretionary sectors reported somewhat better sales outlooks, supported by demand for budget-friendly offerings and stronger tourism. Housing-linked sales outlooks remained weak; the improvement reflected demand stabilizing after a soft period, not a recovery. Several firms again said public spending, particularly on infrastructure and defence, was supporting their outlooks.
Export strength was an early snapshot
Before the talks broke down, indicators of future export sales rose slightly and remained well above their historical average. The Bank cites solid US demand in manufacturing, tourism and professional services, and among firms tied to US artificial-intelligence and infrastructure spending. Elevated commodity prices and expansions in production and transportation capacity supported natural-resource exports, especially oil and gas.
In that early evidence, few exporters said trade tensions were weighing on sales outlooks. In the special consultations, some said they were diversifying export markets and adjusting products or services.
After the breakdown, the Bank says new US tariffs and Canadian counter-tariffs weighed on outlooks. Those tariffs were dampening sentiment, weakening export and investment outlooks, and putting upward pressure on costs and prices. The early improvement and the later tariff pressure are different slices of the same publication. About three-quarters of the interviews came before the break.
Investment held up, and hiring did not
Investment intentions eased slightly but remained robust, supported by better demand. Natural-resource firms pointed to strong demand and elevated commodity prices. Across sectors, firms reported plans to invest in digital technologies, including artificial-intelligence tools in software, machinery and automation systems aimed at improving efficiency.
The fetched text ends while saying trade tensions weighed less on near-term sales but uncertainty about the longer-term trade environment continued. Later chart values are not in that text and are not added here.
Hiring did not match the better sales outlook. Intentions remained soft, and most firms planned to keep headcounts unchanged. The majority still reported spare capacity. A slightly larger share than last quarter said they would have difficulty meeting an unexpected increase in demand. That shift is not a local count of job openings.
Costs, pass-through and what to watch
Expectations for growth in input and selling prices moderated but remained elevated, often because of high global oil prices and trade tensions. Firms facing larger-than-normal cost increases planned to continue passing them on. For several, further pass-through reflected somewhat improved demand and efforts to make up for past margin compression.
Compared with the previous quarter, inflation expectations eased overall but remained elevated. Separately, the Bank says inflation expectations have risen alongside the new tariffs and the recent rebound in energy prices. The easing is the quarter’s broad result. The rise refers to evidence after the talks broke down. Neither is the Consumer Price Index.
If suppliers carry out the reported pass-through plans, a small buyer could see firm quotes. That possibility is not a measured invoice. A seller tied to housing cannot assume customers will accept the same increase, because that outlook remained weak. Supply-chain changes, efficiency measures, new markets and less capacity are reported responses, not a household bill.
Improved sentiment here means better sales readings from interviews that mostly ended by September 2, with hiring plans still soft and cost expectations still high. Watch whether later updates keep showing tariff pressure on exports and investment, flat headcount plans, and elevated input-price expectations.