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Results of the Winter 2018 Survey | Vol. 15.4 | December 21, 2018

Results from the winter Business Outlook Survey continue to indicate positive business sentiment and elevated capacity pressures in most regions. For firms in the Prairies, the outlook has weakened.


  • Although sales prospects generally remain positive, firms expect growth to stabilize. The sales outlook among firms in the Prairies is subdued.
  • Plans to increase investment and employment, often supported by sales expectations, are widespread, especially in the services sector.
  • The indicator of capacity pressures is still elevated, despite fewer firms in the Prairies reporting capacity constraints. Views that labour market pressures have intensified over the past year continue to be pervasive, though less so than in the autumn survey.
  • Firms expect input and output prices to rise at a somewhat greater pace than over the past 12 months. Businesses’ expectations of upward price pressure from tariffs and rising labour costs are partially offset by an anticipated moderation in commodity price growth. Inflation expectations are roughly unchanged and remain concentrated in the top half of the Bank of Canada’s 1 to 3 per cent inflation-control range.
  • While credit conditions were unchanged for most firms, the indicator points to a slight tightening.
  • The Business Outlook Survey indicator decreased slightly but is still elevated, signalling that business sentiment overall continues to be positive.

Business activity

The indicator on past sales growth is positive (Chart 1) and higher than in the autumn survey, pointing to the generalized view that firms’ sales grew at a faster pace over the past 12 months. Conversely, over the next 12 months, firms expect sales growth to stabilize, as indicated by the balance of opinion near zero (Chart 2, blue bars). Firms linked to western Canadian oil prices and to housing in some regions expect demand to weaken or remain subdued and sales growth to moderate. Other businesses also anticipate a stabilization or slowdown in the pace of sales growth after a period of robust activity and amid capacity constraints. Indicators of future sales, such as order books and sales inquiries, have improved compared with a year ago (Chart 2, red line); however, this view is less widespread than in recent surveys. Positive sales outlooks are most prevalent among firms tied to information technology or non-residential construction.

Chart 1: Past sales growth

Chart 2: Future sales growth

On balance, exporters’ sales expectations have weakened slightly but remain positive, supported by ongoing strength in foreign demand. Most firms anticipate positive US economic growth in the upcoming year, and many expect their sales to benefit directly or indirectly. However, some noted that protectionist measures, including tariffs, will mute the positive impact. Exporters continue to report that their sales are limited by capacity constraints (frequently labour-related).

The indicator of investment spending on machinery and equipment receded slightly (Chart 3), but intentions are still solid, supported by sustained demand. Plans for higher expenditures in the next 12 months are concentrated in the services sector (e.g., transportation and commercial services). Many businesses reported capital spending plans to expand output or to increase efficiencies. Despite a weakened sales outlook among firms in the Prairies, their investment intentions are held up by long-term investment strategies and spending plans to implement new technology. Still, some firms cited impediments to investment, including regulations and related uncertainty (e.g., around energy pipeline approvals).

Chart 3: Investment intentions

On balance, intentions to increase employment continue to be widespread and similar to the autumn survey (Chart 4). Positive hiring intentions continue to be most common in the services sector. Businesses intending to add to their workforce commonly reported needing more staff to meet expected sales growth. Firms that anticipate maintaining existing staff levels often cited plans to meet increases in demand through technology, including automation and digital tools.

Chart 4: Employment intentions

Pressures on production capacity

The share of firms that would have difficulty meeting an unanticipated increase in demand continues to be elevated (Chart 5), despite fewer businesses in the Prairies reporting constraints. Labour-related constraints remain the most frequently cited bottleneck. Overall, firms no longer anticipate capacity pressures to intensify, pointing to increases in investment and employment that expand productive capacity, and expectations that demand in the Prairies and around housing in some regions will moderate.

Chart 5: Capacity pressures

The balance of opinion on labour shortage intensity is still elevated but has moved down from its record high in the autumn survey (Chart 6, red line). Firms that cited more intense labour shortages are concentrated in Central Canada and British Columbia. Overall, the number of businesses reporting that labour shortages are restricting their ability to meet demand remains close to the historical average (Chart 6, blue bars) but has declined in the Prairies. Firms frequently cited labour shortages in skilled professional occupations, particularly information technology. Many firms with labour shortages are taking measures to increase their workforce in response (Box 1).

Chart 6: Labour shortages

Prices and inflation

The balance of opinion on input prices declined but remains slightly positive, suggesting that businesses expect input prices to grow at a somewhat greater rate over the next 12 months (Chart 7). Firms continue to report that various tariffs will add to cost growth, either directly or through supply chains. However, some businesses, predominantly in the goods sector, anticipate slower input price growth due to downward pressure on commodity prices.

Chart 7: Input prices

The indicator on output prices is positive, as businesses anticipate output prices to grow at a faster pace over the next 12 months (Chart 8). Several firms expect to pass on higher costs—such as those associated with labour and supplier prices, sometimes related to tariffs—to their customers. Expectations of slower price growth are most widespread among firms in the goods sector and are often related to commodity prices.

Chart 8: Output prices

Inflation expectations are roughly unchanged from the autumn survey (Chart 9). More than half of firms continue to expect inflation over the next two years to be in the upper half of the Bank’s inflation-control range. Several firms cited rising labour costs and a growing Canadian economy as factors influencing their inflation expectations.

Chart 9: Inflation expectations

Credit conditions

While credit conditions were unchanged for most firms, the indicator points to a slight tightening (Chart 10). Among those businesses reporting a tightening, several are based in the Prairies. Most firms continue to report that access to credit is easy or relatively easy to obtain.

Chart 10: Credit conditions

Business Outlook Survey indicator

The Business Outlook Survey (BOS) indicator decreased slightly but remains elevated (Chart 11), as responses to almost all BOS survey questions are holding above their historical averages. This continues to signal that overall business sentiment is positive.

Chart 11: BOS indicator


Box 1: Firms are taking measures to increase their workforce amid tightening labour markets

Box 1: Firms are taking measures to increase their workforce amid tightening labour markets

Since the summer 2017 survey, the labour shortage intensity indicator has been positive as firms have stated that, on balance, labour shortages were more intense compared with 12 months ago—particularly outside the Prairies (Chart 1-A). This suggests that labour markets have been tightening. In this context, firms participating in the winter survey were asked what measures, if any, they are taking in response. Overall, two-thirds of businesses, including all firms that cited binding labour shortages, reported taking action.

Measures related to growing the number of staff were the most commonly cited. Specifically, many firms noted that they are increasing their recruiting efforts, often by tapping further into other sources of labour—for instance, drawing on recent graduates or immigrants. Respondents also frequently reported that they are raising wages to attract and retain workers. Some businesses cited other measures, such as enhancing non-wage compensation (e.g., benefits, vacation time) and improving working conditions.

Firms concentrated in the services sector also frequently reported responding to labour shortages by increasing employee productivity. Such measures included increasing training for existing or new workers—commonly cited among firms drawing on other labour pools.

Some firms are focusing on other approaches, such as increasing the number of overtime hours of existing staff, contracting work out more often and relying further on machinery and equipment (e.g., through automation or labour-replacing technology).

Chart 1-A: Reports that labour shortages were more intense have been widespread

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 November 5 to November 28, 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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