Canadian small business hiring lags as larger employers eye growth

Canadian small business hiring intentions are splitting from those of larger employers. The gap has direct implications for HR leaders managing workforce plans under tariff pressure.

Two reports published in July 2026 tell sharply different stories about the Canadian labour market.

Express Employment Professionals surveyed 508 Canadian hiring decision-makers in May and found 74 percent feel positive about their hiring outlook for the rest of 2026. That is up from 67 percent in the fall of 2025.

The Canadian Federation of Independent Business (CFIB) Monthly Business Barometer for July tells a different story. Based on 520 small business responses from July 7 to 13, only 15 percent of owners planned to hire, and 11 percent planned layoffs.

Canadian small business hiring intentions remain fragile

The CFIB long-term index rose to 58.3 in early July, an eight-point gain from June. But the survey closed before US President Donald Trump announced a new tariff round targeting Canada. Simon Gaudreault, CFIB chief economist and vice-president of research, said the August reading will likely give back those gains.

“Although confidence had started to improve, renewed trade uncertainty can quickly undermine progress,” Gaudreault said. “The last thing we want is for small business confidence to take a hit like it did in March 2025. It cratered to an all-time low after the first round of tariffs was announced.”

For HR leaders at small and medium-sized employers, the staffing data is the number that matters. The July figures are better than May 2026, when layoff intentions outpaced hiring plans for the first time that year. Recovery is real but thin, and a new tariff shock could reverse it quickly.

Insufficient demand was the top constraint on business expansion, reported by 50 percent of small business owners. Planned price increases fell to 2.7 percent. Average wage increases held flat at 2.3 percent. The compensation environment remains tight for workers at smaller firms.

Larger employers face a different problem

The Express Employment Professionals survey, covered by HRD previously, shows a more active hiring market at the mid-to-large employer level. Forty-three percent of companies plan to increase headcount in the second half of 2026. But 32 percent say they have open positions they cannot fill – up from 29 percent in the fall of 2025.

“The mismatch between open jobs and available talent is not something businesses can afford to ignore,” said Bob Funk Jr., CEO, president and chairman of Express Employment International. “The right worker may not always arrive ready-made, but with the right training and support, they can become the right fit.”

The top hiring challenge was finding qualified candidates, flagged by 45 percent of respondents. Navigating artificial intelligence (AI) in recruitment came second at 28 percent. Planning labour needs amid recession concerns or policy changes was cited by 20 percent, a figure likely to grow as tariff uncertainty deepens.

Among companies planning to reduce headcount, 60 percent cited cost reduction and 46 percent pointed to automation or AI.

HR leaders should note that technology-driven workforce reductions are increasingly occurring alongside growth-related hiring. Trade uncertainty continues to suppress investment and staffing confidence across Canada – and that tension is not easing.

Manufacturing is the sector to watch

The CFIB data includes a special focus on manufacturing. Long-term confidence in the sector rose to 53.7 in July. Its historical potential sits at 60.1. CFIB said manufacturing has not recovered since 2023. Tariffs have hit it harder than the 2008-09 recession or the pandemic, the federation said.

Sixty-three percent of manufacturers cited shipping and receiving costs as a major constraint in July. In February 2026, before the trade dispute escalated, that figure was 29 percent. Input product costs were squeezing 77 percent of manufacturers – nearly twice the sector’s normal share.

“This industry is in a very challenging spot,” said Andreea Bourgeois, CFIB director of economics. “Optimism among manufacturing firms was showing timid signs of improvement, but still below its historical average and most likely would lose momentum going forward.”

Bourgeois noted some manufacturers are considering shifting production to the United States. She called for a more competitive fiscal environment to keep businesses investing in Canada. For HR leaders in manufacturing, that is a workforce stability risk worth factoring into planning now.

Canadian small business hiring data points to a market under pressure from tariffs, weak demand, and tight margins. The August CFIB reading – collected after the latest tariff announcement – will show whether July’s rebound held.