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Results of the Spring 2018 Survey | Vol. 15.1 | April 9, 2018

Results of the spring Business Outlook Survey suggest that business sentiment continues to be positive, supported by healthy sales prospects. Due to recent strong demand, capacity and labour pressures are evident in most regions.


  • Forward-looking sales indicators remain positive across most regions and sectors. Some firms expect a moderation in sales activity from high levels in the past year or a gradual slowing of the pace of the recovery in the energy sector.
  • While firms’ expectations for US economic growth have strengthened further, some cited rising protectionism and reduced competitiveness as factors limiting the impact on their sales (Box 1).
  • Although less so than in recent surveys, intentions to increase investment continue to be widespread. Employment intentions are solidly positive, based on firms’ plans for hiring to support expected sales growth or to expand operations.
  • Indicators of capacity pressures and labour shortages edged down but are still close to recent high levels. Remaining economic slack appears to be mostly concentrated in the energy-producing regions.
  • Despite expectations for faster input price growth overall, on balance, firms continue to anticipate only modest acceleration in the growth of their output prices due to competitive pressures. Partly driven by rising labour costs, inflation expectations picked up but are still well within the Bank’s inflation-control range of 1 to 3 per cent.
  • While credit conditions were unchanged for most firms, the indicator points to a slight tightening.
  • The Business Outlook Survey indicator continues to be high, signalling positive business sentiment.

Business activity

Building on a reported further strengthening of sales growth over the past 12 months (Chart 1), firms expect sales to grow at a faster pace over the next 12 months (Chart 2, blue bars). Among those anticipating faster sales growth, several reported focusing on their product offerings and strategies to reach new customers, including increasing their online presence. As well, firms across all regions and sectors saw an overall improvement in indicators of future sales, such as order books and sales inquiries (Chart 2, red line), albeit to a lesser extent in the Prairies.

Chart 1: Past sales growth

* Percentage of firms reporting faster growth minus the percentage reporting slower growthLast observation:

Chart 2: Future sales growth

* Percentage of firms expecting faster growth minus the percentage expecting slower growth
** Percentage of firms reporting that indicators have improved minus the percentage reporting that indicators have deterioratedLast observation:

Still, several firms anticipate a moderation in sales growth from the pace of the past 12 months, often reflecting expectations of a return to a more sustainable rate after a period of robust activity. Others tied to the energy sector expect the pace of the recovery to slow as oil price discounts and competitiveness issues weigh on sales prospects.

On balance, firms report improved orders from foreign customers compared with those a year ago, and are optimistic about their outlook for export sales. While expectations for US economic growth over the next 12 months have strengthened further, some firms cited rising protectionism and reduced competitiveness as factors limiting the potentially positive impact on sales (Box 1). Despite these concerns, firms expect US demand to provide a lift to their sales overall.

The balance of opinion on investment in machinery and equipment edged down from recent high levels but continues to point to an increase in investment over the next 12 months (Chart 3). Encouraged by ongoing strength in demand, plans for greater spending are most widespread among firms in service industries. Firms not planning to increase capital expenditures often attributed this to large investments made over the past year or to the tax or regulatory environment.

Chart 3: Investment intentions

* Percentage of firms expecting higher investment minus the percentage expecting lower investmentLast observation:

The balance of opinion on employment intentions edged up again and remains high (Chart 4). Intentions to increase employment over the next 12 months are widespread across regions and most sectors, particularly in services. Most businesses expecting to enlarge their workforces cited the need to support anticipated sales growth or plans for expansion.

Chart 4: Employment intentions

* Percentage of firms expecting higher levels of employment minus the percentage expecting lower levels Last observation:

Pressures on production capacity

The indicator of capacity pressures moderated but is still close to recent high levels overall, particularly outside the energy-producing regions (Chart 5). Labour-related constraints continue to be the most prevalent obstacle to scaling up operations in response to an unanticipated increase in demand. On balance, firms anticipate capacity pressures to further intensify over the next 12 months, pushed by strong sales prospects and expected difficulties finding labour.

Chart 5: Capacity pressures

 Last observation:

The balance of opinion on labour shortage intensity is unchanged at a high level, indicating a continuing and widespread view that labour shortages have intensified over the past year (Chart 6, red line). The share of firms reporting that labour shortages are restricting their ability to meet demand is now just below the historical average (Chart 6, blue bars). Firms in British Columbia and Central Canada described hiring conditions as difficult, often citing shortages in construction, information technology and transportation, as well as in lower-paid, less-skilled occupations.

Chart 6: Labour shortages

* Percentage of firms reporting more intense labour shortages minus the percentage reporting less intense shortagesLast observation:

Prices and inflation

The balance of opinion on input prices edged down but is still firmly positive, signalling an increase in the expected pace of cost growth over the next 12 months (Chart 7). Positive expectations are widespread across regions and sectors and were often attributed to strength in various commodity prices. Several firms also referred to higher costs of intermediate goods and contractual services. Others reported emerging price pressures in their supply chains due to recent policy measures such as carbon taxes and higher minimum wages.

Chart 7: Input prices

* Percentage of firms expecting greater price increases minus the percentage expecting lesser price increases Last observation:

The indicator on output prices is modestly positive, reflecting expectations for somewhat faster output price growth over the next 12 months (Chart 8). Businesses attributed positive pressures to pass-through of commodity prices or non-labour inputs. Some firms, especially exporters, continued to report that competition, often linked to global markets or e-commerce, limits their ability to pass on cost increases to customers.

Chart 8: Output prices

* Percentage of firms expecting greater price increases minus the percentage expecting lesser price increases Last observation:

Expectations for inflation over the next two years picked up in the spring survey (Chart 9). While most firms still anticipate that inflation will remain within the Bank’s inflation-control range of 1 to 3 per cent, just above half now expect inflation to be in the upper half of that range. Firms cited rising labour costs (due to tighter labour markets and, to a lesser extent, minimum wage increases) and higher prices for some commodities as the main factors influencing expectations.

Chart 9: Inflation expectations

Last observation:

Credit conditions

After several quarters of hovering near zero, the balance of opinion on credit conditions turned slightly positive, indicating a net tightening over the past three months (Chart 10). While the majority of firms reported no change in their terms and conditions for obtaining financing, some of those seeing a tightening are directly or indirectly exposed to the energy sector. Most firms continue to characterize credit as easy or relatively easy to obtain.

Chart 10: Credit conditions

* Percentage of firms reporting tightened minus the percentage reporting eased. For this question, the balance of opinion excludes firms that responded “not applicable.” Last observation:

Business Outlook Survey indicator

The Business Outlook Survey indicator edged down but remains high, with most indicators included in this summary measure holding above their historical averages (Chart 11). This result is consistent with positive business sentiment overall.

Chart 11: BOS indicator

Last observation:

Box 1: The impact of US policy changes or associated uncertainty: views from BOS firms

Beginning with the spring 2017 Business Outlook Survey, firms have been asked if policy announcements from the new US administration or the uncertainty around them have had an impact on their business to date or whether any is expected. Over the past year, most firms reported that they have not been affected so far (Chart 1‑A) and anticipate no clear impact over the coming 12 months (Chart 1‑B). This includes many domestically oriented firms as well as exporters deeming it too early to tell. However, the views of those reporting an impact have shifted over time and have generally become more negative.

Chart 1-A: Most firms have seen no impact over the past year

* Percentage of firms Last observation: 2018Q1

Chart 1-B: Overall, views on potential impacts have become more negative

* Percentage of firms Last observation: 2018Q1

Unfavourably affected firms mainly referred to rising US protectionism, including changes to softwood lumber policy, North American Free Trade Agreement (NAFTA) renegotiations or Buy America sentiments. These firms cited adverse effects on their sales or an increase in their costs (for example, due to tariffs). Others reported challenges moving staff or goods across the border. Some firms in recent surveys, including those in the energy sector, also noted reduced relative competitiveness vis-à-vis US firms, pointing to US tax cuts and regulatory differences. Finally, a few anticipate weakened Canadian business confidence.

While most firms indicated that their domestic investment plans to date have not been affected, some reported reducing or delaying Canadian investments, or are considering changes in response. A few firms reported expanding in the United States.

Among those citing favourable effects, some firms, especially in the spring 2018 survey, foresee benefits from lower taxes for their US subsidiaries or from improved performance of their US clients and partners. Other firms noted gains as Canada attracts more tourists and immigrants.

Overall, many firms see US demand as contributing positively to their sales prospects in the spring 2018 survey. The share of firms anticipating strong economic growth in the United States in the next 12 months is near record-high levels.

The Business Outlook Survey summarizes interviews conducted by the Bank’s regional offices with the senior management of about 100 firms selected in accordance with the composition of the gross domestic product of Canada’s business sector. This survey was conducted from February 12 to March 9, 2018. The balance of opinion can vary between +100 and -100. Percentages may not add to 100 because of rounding. Additional information on the survey and its content is available on the Bank of Canada’s website. The survey results summarize opinions expressed by the respondents and do not necessarily reflect the views of the Bank of Canada.

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