Optimism among Canadian small businesses inched higher in December, but sentiment remains “extremely low” amid high costs and lower consumer demand, according to two monthly indices that track business confidence.

The Canadian Federation of Independent Business (CFIB)’s Monthly Business Barometer report, released Thursday, showed marginal increases in long-term and short-term small business confidence.

The long-term index, based on business performance expectations for the next 12 months, gained one point to reach 47.0. The short-term optimism index, based on a three-month outlook, increased by two points to 39.8.

“Both levels are extremely low,” the CFIB said in its report.

In February 2020, before both indices plummeted with the onset of the COVID-19 pandemic, the CFIB’s long-term index was 60.4, while the short-term index was 57.1.

LABOUR, DEMAND SHORTAGES

Labour shortages are among the driving factors contributing to the low business confidence, the CFIB said.

When asked which factors are currently limiting their ability to increase sales or production, 50 per cent of surveyed businesses cited a shortage of skilled labour, while another 26 per cent said they were experiencing a shortage of unskilled or semi-skilled labour.

The report said a shortage of domestic demand is also impacting business confidence.

“Concern over insufficient demand has remained very high, with 45 per cent of small business owners reporting it as the main limitation on sales or production growth,” the report said.

“The other indicators pointing to a slowdown in demand, (such as) below normal unfilled orders and below normal unsold inventories, have softened slightly in December.”

WHERE IS OPTIMISM ON THE RISE?

Alberta and Newfoundland and Labrador were the only two provinces that saw increases in long-term optimism, while Nova Scotia was the only province that saw a significant reduction in long-term confidence compared to November.

“All other provinces registered minimal changes in optimism,” the CFIB said.

By sector, the barometer found that three sectors – wholesale, construction and agriculture – saw gains in long term optimism, while “all others settled at even lower levels than in the previous months.”

“The biggest drops in optimism were seen in arts and recreation and health and education. Similar to the last three months, agriculture, retail, and hospitality are at the bottom of the optimism scale,” the report said.

METHODOLOGY

December findings are based on 624 responses from a stratified random sample of CFIB members to a controlled-access web survey. Data reflect responses received from Dec. 5 to 8. Findings are statistically accurate to +/- 3.9 per cent 19 times in 20.