Business Outlook Survey—Winter 2019–20

Results of the Winter 2019–20 Survey | Vol. 16.4 | January 13, 2020

Results from the winter Business Outlook Survey suggest that business sentiment is broadly positive except in the Prairies, where indicators remain weak. In aggregate, firms’ outlook is supported by expectations of healthy domestic and foreign sales.


  • Expectations for future sales growth remain positive. Signals for domestic sales have strengthened but are still muted by weakness among firms tied to the energy sector. With concerns around trade tensions declining somewhat, expectations for foreign sales are slightly less guarded compared with previous surveys.
  • Intentions to increase investment spending are somewhat less widespread but remain positive. Many firms reported recently completing large investments and often referenced investments in technology or other efforts to improve efficiency. After trending downward in recent quarters, firms’ hiring intentions improved.
  • Indicators of capacity pressures suggest that economic slack has been absorbed and that labour markets have tightened except in the Prairies.
  • Survey results continue to point to modest price pressures. Inflation expectations are unchanged, with the majority of firms still expecting inflation to be in the lower half of the Bank of Canada’s inflation-control range.
  • Credit conditions have changed little over the past three months.
  • The Business Outlook Survey indicator continued to edge up after falling below zero in early 2019. This suggests a small improvement in business confidence.

Business activity

The balance of opinion on past sales growth is just below zero, which suggests firms, in aggregate, again experienced a steady pace of sales growth over the past 12 months (Chart 1). This partly reflects slower sales growth in the past 12 months for businesses in the Prairies as challenges in the energy sector spread to other sectors in the region. Firms see some signs that energy-sector activity may have bottomed out as production limits are gradually removed and some progress is made on pipeline capacity. Outside the energy-producing regions, reports of improved indicators of future sales are widespread (Chart 2, red line), with businesses pointing to infrastructure and resource projects, population growth, consumer spending and housing activity supporting demand for their products. The balance of opinion on future sales declined (Chart 2, blue bars) but continues to suggest some acceleration in sales growth in the next 12 months. Some businesses expect their sales growth will moderate to a more sustainable pace after a period of strong growth in the past 12 months.

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:

Foreign demand, particularly US demand, continues to lift export prospects, with businesses reporting improved orders from foreign customers compared with 12 months ago. In addition, with concerns around trade tensions declining somewhat, firms’ expectations for US economic growth have recovered slightly. Fewer respondents than in the autumn survey expect a US recession. Many firms expect to benefit directly or indirectly 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 for their US competitors.

The balance of opinion on investment in machinery and equipment decreased to just below its historical average but still suggests that firms plan to increase capital spending in the next 12 months (Chart 3). Many firms reported focusing their investments on efforts to increase efficiency, frequently including investments in technology. Intentions to increase investment spending are less widespread than in the previous survey, as more firms than usual reported having just completed large investment projects last year.

Chart 3: Investment intentions

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

After trending down for several quarters, the employment intentions indicator increased in the winter survey (Chart 4). Hiring plans are widespread across most sectors but are concentrated among firms in Quebec and British Columbia. Several businesses intend to add staff to meet expected increases in demand or to expand production. Firms anticipating similar or lower levels of employment often referred to increased automation and weaker sales expectations as reasons.

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 edged up for the third consecutive quarter, suggesting that economic slack has been absorbed (Chart 5). Businesses operating at or above capacity most often referred to labour-related constraints as the main obstacle to scaling up output to meet an unexpected rise in demand. However, businesses in the Prairies continued to report limited capacity pressures, often citing weak demand and readily available labour. Respondents across the country anticipate pressures on capacity will increase further over the next year, and many referred to rising demand and difficulties finding labour as the driving factors.

Chart 5: Capacity pressures

  Last observation:

The share of firms reporting binding labour shortages is just above its historical average (Chart 6, blue bars). Reports of labour shortages continue to be most common in Central Canada and British Columbia. Firms frequently reported a shortage of specialized labour (e.g., skilled trades, engineers) as well as of workers in lower-paid, less-skilled occupations. The indicator of labour shortage intensity suggests that firms consider labour markets to have tightened compared with a year ago, except in the Prairies (Chart 6, red line).

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 turned positive, pointing to a faster pace of price growth for some non-labour inputs over the next 12 months (Chart 7). Firms often cited commodity prices as contributing positively to input price momentum. In some regions, the positive input price balance reflects price stabilization following a period of price declines.

Chart 7: Input prices

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

Overall, firms plan to increase their output prices at a similar rate in the next 12 months, as indicated by the near-zero balance of opinion (Chart 8). The indicator edged down this quarter, as many firms, particularly in Quebec, reported plans to hold price growth steady following increases last year. Weak demand continues to put downward pressure on prices in the Prairies.

Chart 8: Output prices

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

A majority of firms continue to expect inflation to be in the lower half of the Bank’s 1 to 3 percent inflation-control range over the next two years (Chart 9). Some firms reporting inflation expectations of between 1 and 2 percent base their views on recent inflation trends or weak demand in their region. As in the autumn survey, inflation expectations in Quebec are higher, driven by tighter regional labour markets.

Chart 9: Inflation expectations

Last observation:

Credit conditions

With a balance of opinion just below zero, there has been little change in the past three months in businesses’ terms and conditions for financing (Chart 10). Some businesses that reported more favourable terms attributed these to greater competition among banks. Several firms in the Prairies reported tighter credit conditions.

Chart 10: Credit conditions

* Percentage of firms reporting tightened terms and conditions 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 (BOS) indicator continued to edge up after falling below zero in early 2019, suggesting a small improvement in business confidence (Chart 11). Results for several BOS questions were near or slightly above their historical averages.

Chart 11: BOS indicator

Last observation:

Box 1: The majority of firms see climate change as relevant to their business operations

As part of the Bank of Canada’s broader efforts to understand the macroeconomic impacts of climate change, firms participating in the autumn and winter Business Outlook Surveys were asked to what extent climate change affects or is taken into consideration in their business operations. The majority of firms, especially those in the goods sector and large and exporting firms, reported that climate change is a relevant or very relevant topic for their business.

More than half of the affected respondents noted negative impacts of climate change for their businesses, mainly for two reasons. First, several have suffered the consequences of extreme weather, including financial losses or damage related to floods, wildfires and hurricanes. Changing seasonal patterns and generally more unpredictable weather also disrupted firms’ operations or sales in agriculture and fishing, as well as industries tied to transportation and construction. Second, many respondents referred to increased costs related to complying with climate-related policy and regulation (e.g., pollution charges, environmental standards and disclosure policies), as well as higher insurance costs for some.

Conversely, one-third of affected firms noted positive impacts of climate change for their firm, often related to new business opportunities. These include firms selling products or services that are energy-efficient or environmentally friendly to customers looking for lower-carbon alternatives. They often pointed to growing demand for green products (including clean technology) and a strong demand for green financial products; some noted that they had benefited from adopting new offerings ahead of competitors. A few businesses also reported that warmer weather helps their sales (e.g., in tourism). Finally, some firms also said that the adoption of energy-efficient technologies helped reduce their operating costs (e.g., due to lower energy consumption).

Over one-third of businesses said they are already taking concrete steps in response to climate change. This is often an important consideration for corporate image and is relevant to both customers and employees (i.e., corporate social responsibility). Several firms describe their move as necessary to attract young or more environmentally conscious workers, to fulfill clients’ or investors’ requirements, or to enhance their marketing. Some firms noted they are focusing on sustainability, investing in green energy such as solar power and low- or zero-emission fleet vehicles. Others said they are prioritizing waste management as a way to reduce their footprint or offering green incentives for their employees. A few reported planning to become or having already become carbon neutral.

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 13 to December 9, 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.