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Results of the Summer 2019 Survey | Vol. 16.2 | June 28, 2019

Results from the summer Business Outlook Survey point to a slight improvement in business sentiment after a moderation in the previous survey. Investment and hiring intentions continue to be healthy.


  • Following some softness in past sales, businesses expect an increase in sales growth in the next 12 months, backed by healthy domestic and foreign demand (Box 1). Weakness tied to the Western Canadian oil industry and global trade headwinds continue to hold back future sales.
  • Intentions to increase investment spending and to hire are positive in most regions and sectors.
  • After falling in the last survey, the indicator of capacity pressures recovered somewhat. Reports of labour shortages increased from a low level but are not widespread.
  • Input price growth is expected to slow slightly as several firms anticipate the pressures on input prices from tariffs will fade over the next 12 months. Output price growth is expected to accelerate modestly as more firms see favourable conditions for passing on various cost increases to customers. Inflation expectations are unchanged. A majority of firms anticipate inflation will be in the lower half of the Bank of Canada’s inflation-control range.
  • Firms reported a marginal net easing in credit conditions over the past three months.
  • The Business Outlook Survey indicator edged up to its historical average, consistent with a slight improvement in business sentiment.

Business activity

The indicator of past sales growth is near zero (Chart 1), suggesting that the pace of sales growth stabilized in the past 12 months—this follows a moderation in past sales growth noted last quarter. The balance of opinion on future sales growth has moved up and is positive (Chart 2, blue bars), pointing to a faster pace of sales growth in the next 12 months. These expectations are underpinned by an improvement in indicators of future sales (Chart 2, red line), such as better order books and more sales inquiries, compared with a year ago. In general, firms continue to anticipate domestic demand will remain supportive (Box 1). Sales optimism is concentrated in Central Canada and includes positive expectations for housing activity. Nevertheless, firms anticipate weakness in sales tied to the Western Canadian oil industry to persist.

Chart 1: Past sales growth

Chart 2: Future sales growth

Survey results for foreign sales prospects remain positive, though at low levels, and suggest that export sales growth will pick up modestly. Firms based their outlooks on sustained foreign demand, especially from the United States, and the low Canadian dollar. Still, firms anticipate global trade headwinds (e.g., protectionist measures and geopolitical tensions) and related uncertainty will hold back their US and other foreign sales. Shifting from more bullish expectations in 2018, most respondents anticipate the US economy will grow slowly, with some citing a drag from US–China trade tensions.

The balance of opinion on investment in machinery and equipment is unchanged and slightly above its historical average (Chart 3). It continues to be supported by foreign and domestic demand. Whereas services sector firms had stronger intentions in recent surveys, more goods-producing firms outside the energy sector now plan to increase capital spending. Some businesses said they intend to invest in information technology, automation and specialized equipment.

Chart 3: Investment intentions

Intentions to increase employment are positive and similar to the spring survey (Chart 4). Plans to hire are still widespread across most regions and sectors. Businesses often noted expected sales growth and expansions as the reasons to add to their workforce.

Chart 4: Employment intentions

Pressures on production capacity

The number of firms reporting capacity pressures recovered somewhat following a decline in the spring survey but remains below the high levels of 2018 (Chart 5). Respondents often pointed to labour-related constraints as a key obstacle to meeting a sudden rise in demand. Some businesses in Central Canada expect capacity pressures to intensify because of continued strength in demand.

Chart 5: Capacity pressures

Reports of labour shortages increased from a low level (Chart 6, blue bars) but are not widespread. Firms often reported shortages of skilled or specialized labour (e.g., skilled trades, management positions, engineers). The balance of opinion on the intensity of labour shortages is roughly the same after falling in the spring survey (Chart 6, red line). Nearly half of all respondents judged labour shortages to be unchanged compared with 12 months ago, with some indicating that hiring has been difficult for more than a year. Views that labour shortages are more intense than a year ago are most evident in Quebec.

Chart 6: Labour shortages

Prices and inflation

The balance of opinion on input price growth turned negative (Chart 7). This suggests that input price growth is anticipated to slow somewhat. Several firms expect the pressures on input prices from tariffs (such as those on steel and aluminum) will fade over the next 12 months. Some respondents in the summer survey also referred to higher input costs due to recent US–China tariffs. Businesses anticipate positive price pressures from various non-commodity inputs.

Chart 7: Input prices

On balance, firms expect output prices to grow at a slightly faster pace (Chart 8). Several businesses, often those with a positive outlook for future sales, expect to incorporate various non-labour cost increases into their output prices. Businesses noted that competition continues to constrain growth in selling prices. Some respondents also reported that price increases last year due to rising commodity prices and tariffs are not expected to be repeated in the next 12 months.

Chart 8: Output prices

After declining in the spring survey, inflation expectations are largely unchanged (Chart 9). The majority of businesses anticipate inflation to be in the lower half of the Bank’s 1 to 3 percent inflation-control range over the next two years. Some of these firms based their expectations on weakness in the Canadian economy and past inflation trends.

Chart 9: Inflation expectations

Credit conditions

While most businesses reported no change in the terms or conditions for obtaining financing over the past three months, the indicator points to a marginal easing (Chart 10). As in the spring survey, some firms attributed the easing to their own recent strong performance or to greater competition among banks.

Chart 10: Credit conditions

Business Outlook Survey indicator

Following a decline in the spring survey, the Business Outlook Survey (BOS) indicator edged up to just above zero (Chart 11), consistent with a slight improvement in business sentiment. Results for several BOS questions are near or somewhat above their historical averages.

Chart 11: BOS indicator

Box 1: Domestic and foreign demand drive firms’ sales expectations

In recent quarters, firms participating in the Business Outlook Survey were asked about the factors driving and holding back their sales in the next 12 months. In the summer 2019 survey, many respondents reported that domestic demand, particularly in Central Canada, and foreign demand will support their sales (Chart 1-A). Indeed, the number of firms referring to strength in domestic demand has increased following a drop in the spring survey. In addition, businesses often expect their sales to improve as a result of their own initiatives (e.g., marketing, developing new products or expanding to new markets). In the summer survey, respondents said the price environment for their products and services (often linked to the Canada–US exchange rate) is positively influencing sales expectations.

In contrast, businesses frequently said capacity constraints, often labour-related, will restrict sales. Several firms also expect various regulations and policies to hold back their future sales. For example, some businesses referred to uncertainty around future pipeline capacity and production curtailments. Others mentioned housing market measures as well as lengthy processes for obtaining approvals (e.g., for land use and new products). Some exporters anticipate trade policies or related uncertainty will dampen their sales abroad. Finally, on balance, firms expect competition to limit their sales.

Chart 1-A: Expected sales are supported by strong domestic and foreign demand

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 May 7 to June 3, 2019. 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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