Canadian Manufacturing

Bank of Canada survey suggests business confidence up

Outside of energy-producing regions, reports of improved indicators of future sales are widespread

January 13, 2020  The Canadian Press

OTTAWA — Business confidence in Canada has edged higher as global trade tensions have eased, but the Prairies, hard hit by a drop in energy prices, continue to remain a weak spot, according to the latest outlook survey by the Bank of Canada.

The central bank said its Business Outlook Survey, which is based on interviews with senior management at about 100 firms, found that outside of the energy-producing regions of the country, reports of improved indicators of future sales are widespread.

It said foreign demand, particularly from the US, continued to lift exports as businesses reported improved orders from foreign customers compared with a year ago.

“In addition, with concerns around trade tensions declining somewhat, firms’ expectations for US economy growth have recovered slightly,” the bank said in its report.

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“Many firms expect to benefit directly from US demand, notably in construction and tourism industries. However, some reported dampened prospects due to protectionism and other US policies that are more favourable to their US competitors.”

The bank’s survey also suggested that labour shortages are a key obstacle to meeting an unexpected rise in demand except in the Prairies.

“Businesses in the Prairies continued to report limited capacity pressures, often citing weak demand and readily available labour,” the report said.

The survey suggested the balance of opinion among businesses on investment in machinery and equipment edged lower, but still suggested companies plan to increase their capital spending in the next 12 months.

“Many firms reported focusing their investments on efforts to increase efficiency, frequently including investments in technology,” the report said. “Intentions to increase investment spending are less widespread than in the previous survey, as more firms than usual reporting having just completed large investment projects last year.”

TD Bank senior economist Brian DePratto called it “another ho-hum report.”

“Canadian firms remain cautiously optimistic, with solid hiring intentions offsetting a relatively lacklustre investment outlook,” DePratto wrote in commentary.

“It bears noting again that the regional element in this survey is important, with a still challenging operating environment for firms in the Prairies hidden beneath the headline figures.”

Data from the report was accidentally made visible on the Bank of Canada’s website nine minutes ahead of the official publication of the full report at 10:30 a.m. ET.

The Bank of Canada said it was an error in the data publication process and that it was launching a review to ensure the data and report are published only at the designated time.

In a special question as part of the Business Outlook Survey, the Bank of Canada asked firms about climate change.

The bank said that more than half of the affected respondents noted negative impacts of climate change including the consequences of extreme weather and increased costs related to complying with climate-related policy and regulation. A third of affected firms noted positive impacts including new business opportunities such as growing demand for green technology.

Meanwhile in a separate survey of consumer expectations, the bank said Canadians’ expectations for wage growth over the next year have held steady near two per cent, just below their expectations for inflation.

The new Canadian Survey of Consumer Expectations also found mixed signals about the labour market as Canadians saw both an increased chance that they will leave their job voluntarily during the next 12 months and an increased probability that they will lose their job over the next year.

Consumer expectations for home price growth edged higher in the fourth quarter as expectations rose in BC, while expected growth in Alberta and Saskatchewan remained weak.

The release of the Business Outlook Survey and Canadian Survey of Consumer Expectations by the Bank of Canada came ahead of the central bank’s next interest rate decision set for Jan. 22 when it will also release its updated economic forecast in its quarterly monetary policy report.

The Bank of Canada has kept its key interest rate on hold at 1.75% for more than a year even as other central banks around the world have moved to cut rates and loosen monetary policy in response to worries about the global economy.

However, governor Stephen Poloz has kept the central bank’s key interest rate target on hold due to what he has said has been resilience in the Canadian economy.

“The question remains whether governor Poloz and his team will be comfortable with a sub-trend pace of growth amid elevated signs of financial stress and households and tighter financial conditions,” DePratto said.

“The balance of risks still tilts towards easing this spring, but the calculus of near-term risks versus longer-term ones is sure to be sparking lively discussions at the Bank of Canada ahead of next Wednesday’s communications and rate decision.”

The Business Outlook Survey was conducted from Nov. 13 to Dec. 9.

The Canadian Survey of Consumer Expectations is based on an online survey of approximately 2,000 households done in November.

According to the polling industry’s generally accepted standards, online surveys cannot be assigned a margin of error because they do not randomly sample the population.