Small business confidence climbs, but recovery ‘still fragile’

Canada’s small business owners are ending 2025 feeling more optimistic than they have at any point this year, but economists caution that the recovery remains tenuous heading into 2026.

According to the Canadian Federation of Independent Business (CFIB), long-term small business confidence rose to 59.9 in December, up 4.2 points from November and just shy of the index’s historical average.

The December reading of CFIB’s Business Barometer suggests that, overall, more employers expect their performance to improve over the next 12 months than to deteriorate.

Canada’s labour market showed more signs of cooling in the third quarter of 2025, with employers posting fewer job openings even as overall labour demand and payroll employment edged higher, according to Statistics Canada.

Confidence rebounds, but demand stays weak

While the headline numbers are moving in the right direction, CFIB’s chief economist is warning against reading too much into a single month’s results. “December’s numbers are encouraging, but they don’t tell the full story,” says Simon Gaudreault, CFIB chief economist and vice-president of research.

He noted that, even as sentiment crawls back toward its long-term norm, many firms are still struggling to find customers: “While confidence is getting back to its historical average, more than half of businesses are continuing to report insufficient demand as the top growth constraint.

“That’s a clear signal that the economy is still fragile heading into 2026.”

The Business Barometer index is measured on a scale from 0 to 100. Readings above 50 indicate that owners expecting stronger performance outnumber those expecting weaker conditions over the next three or 12 months. December’s results are based on 355 responses from a stratified random sample of CFIB members collected via a controlled-access web survey between Dec. 2 and 8.

Labour market softens as hiring plans stall

The December survey also points to a cooling in the small business labour market. CFIB finds that full‑time staffing plans remain weak, with a greater share of employers planning to cut jobs than to hire.

Overall, 16 per cent of businesses say they expect to reduce full‑time staffing in the months ahead, compared with 14 per cent who anticipate increasing headcount. That “negative share of net staffing intentions” has now persisted for four consecutive months, underscoring a cautious tone among employers who are reluctant to add to payrolls in an environment of tepid demand and high costs.

At the same time, insufficient demand continues to top the list of growth barriers for small enterprises. CFIB reports that 54 per cent of respondents identify weak demand as their main constraint, a level that remains well above historical norms for the index. Combined with tax, regulatory, wage and insurance costs, the demand shortfall is leaving many owners wary about committing to major expansions or new hires as they look ahead to 2026.

Provinces diverge as Quebec lags

The national headline number masks sharp regional differences. CFIB reports that long-term confidence improved in British Columbia, Ontario and Alberta, with all three provinces posting readings at or above 60 on the 12‑month outlook. That places them modestly above the national average and signals that a majority of entrepreneurs in those provinces foresee better conditions in the year ahead.

Quebec, however, moved in the opposite direction. CFIB says the province’s long-term index slipped to 50 in December, pushing it to the bottom of the provincial rankings. An index level of 50 means business owners expecting stronger performance over the next year are now roughly equal in number to those anticipating a weaker environment.

Short-term optimism remains muted across much of the country. While the December survey did not provide detailed one‑to‑three‑month figures in the summary, CFIB notes that shorter-term confidence is still subdued, reflecting continued uncertainty around the broader economy and trade environment.

Sector picture mixed as hospitality and construction cool

By industry, sentiment is far from uniform. CFIB says hospitality and construction businesses saw seasonal declines in confidence in December, a pattern that often surfaces as colder weather slows activity in sectors such as tourism and building.

Other areas of the economy, however, showed more resilience. CFIB reports that health and education, retail and the insurance industry all gained momentum during the month, suggesting pockets of stronger demand and somewhat brighter expectations in those sectors compared with earlier in the year.

The uneven backdrop has made planning particularly challenging for many employers.

“Business owners have told us that 2025 has been a real rollercoaster. It’s been both challenging and unpredictable,” says Andreea Bourgeois, CFIB director of economics. “Even with some positive signs overall, concerns about demand, costs and staffing continue to weigh heavily as ongoing trade uncertainty makes it hard to plan ahead.”

With long-term confidence now flirting with its historical average, CFIB’s latest Barometer suggests the worst of the pessimism that marked earlier parts of 2025 may be ebbing. But with demand still soft, hiring intentions in negative territory and cost concerns lingering, both Gaudreault and Bourgeois are signalling that the road to a sustained, broad‑based recovery for Canada’s small businesses is likely to be bumpy in the year to come.

Cost pressures steady but still elevated

Inflation may be off its peak, but smaller firms continue to grapple with high operating costs. CFIB’s December Barometer shows that price increase and wage growth intentions remained relatively stable, with business owners planning average price hikes of 2.6 per cent and wage increases of 2.2 per cent over the coming months.

Even at those more moderate rates, cost pressures are still biting. Tax and regulatory costs remain the single most frequently cited cost constraint, flagged by 62 per cent of respondents as a key barrier. Wage costs are close behind at 60 per cent, while 58 per cent of business owners identify insurance costs as a major concern as the year closes.

Those figures underline how rising input costs, rather than just interest rates, continue to erode margins and limit the ability of smaller operators to invest in growth, even as headline inflation cools.