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Results of the Summer 2021 Survey | Vol. 18.2 | July 5, 2021

Results from the summer Business Outlook Survey point to continued improvement in business sentiment. Firms tied to high-contact services still face challenges but are becoming more confident that sales will pick up as vaccination rates rise. This suggests an important broadening in the recovery ahead.


  • Most firms reported an improvement in their sales prospects from a year ago. Businesses tied to high-contact services are increasingly confident that restrictions will soon be lifted and that sales will rebound from weak levels. Firms that have been leading the recovery continue to anticipate sales growth but at a slower pace.
  • Indicators of capacity pressures and labour shortage intensity have increased, reflecting stronger demand and tightening labour markets, sometimes from low levels. Supply chain frictions, a key bottleneck for some, are expected to be temporary. At the same time, substantial excess capacity remains among firms hit hard by the pandemic.
  • Plans to invest and hire staff are widespread as firms prepare to meet expected sales increases.
  • Businesses expect wages, input prices and output prices to grow at a faster pace than a year ago, often linking the more rapid growth to healthy or improving demand. Firms’ inflation expectations increased, but most drivers of inflationary pressures are viewed as temporary.

Positive business sentiment is broadening

The Business Outlook Survey (BOS) indicator continued to rise and reached its highest level on record, suggesting that positive business sentiment is broadening (Chart 1). Base-year effects account for some of the improvement in the BOS indicator—many firms hit hard by the COVID‑19 pandemic are making comparisons with exceptionally weak levels from 12 months ago. Nevertheless, compared with the spring survey, positive sentiment is more widespread among businesses less affected by the COVID‑19 crisis. All but a few firms feel the uncertainty related to the pandemic is behind them. Still, some do not anticipate a full recovery of sales to pre-pandemic levels within the next 12 months.

Chart 1: Business sentiment continues to improve

* The BOS indicator is a summary measure of the main survey questions that gauges overall business sentiment. Last observation:

Early signs suggest a rotation in demand toward high-contact services

The number of firms with improved indicators of future sales (e.g., order books, sales inquiries) is at a record high—a concrete signal of a broad-based strengthening in demand relative to a year ago. Indeed, no firms reported signs of a deterioration in demand (Chart 2, red line). These indicators underpin firms’ expectations that sales will continue to increase at a greater rate than over the past 12 months (Chart 2, blue bars). The results for these two forward-looking sales indicators are elevated partly because of base-year effects.

The trends in anticipated demand continue to be driven by how firms have been affected by the pandemic.

  • About 40 percent of firms have current sales below pre-pandemic levels. Generally, these firms see substantial increases in their indicators of future sales relative to extremely weak levels a year ago.
    • Several of these businesses are tied to hospitality, tourism, travel and certain segments of retail.
    • Many expect their sales to fully return within the next 12 months, with several expecting pent-up demand to generate a sharp increase in sales after restrictions are lifted.
    • Although businesses hardest hit by the pandemic do anticipate an increase in future sales, they do not expect their sales to fully return to pre-pandemic levels in the next 12 months. These firms often cited ongoing international travel restrictions, caution among consumers to travel or to participate in social activities, continued online shopping and ongoing remote work.
  • The remaining firms fared better in the pandemic. While most expect sales increases to continue, some anticipate sales growth at a slower rate.
    • These businesses that fared better are tied to housing, consumer goods (e.g., food, outdoor sports and recreation equipment), ongoing government spending (especially around infrastructure) and natural resources, or are benefiting from the sale or use of digital technology.

Together, the results from both groups of firms suggest:

  • improved demand
  • an important broadening in the recovery ahead
  • a shift to more balanced consumption of goods and services

The outlook on foreign sales, particularly to the United States, is also robust. Exporters with positive views of sales are often tied to technology and US household consumption. Some exporters noted that the US economy is growing strongly and is recovering from the pandemic more quickly than the Canadian economy.

Chart 2: Most firms reported signs of improved demand

* 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:

An excess supply of labour remains

At the time of the survey substantial excess capacity remained among businesses hit hard by the pandemic, even while reports of capacity pressures reached their highest level on record (Chart 3). Many firms said that labour-related constraints would cause some or significant difficulties in meeting an unexpected increase in future demand. But the number of firms stating they have actual labour shortages limiting their ability to meet current demand remains modest (Chart 4, blue bars). Indeed, several businesses, often those tied to high-contact services, continue to report an excess supply of labour.

Businesses reporting labour-related constraints linked them to:

  • difficulties finding skilled or specialized labour (e.g., skilled trades, information technology or sales professionals), a situation they expect to persist
  • the pandemic, including constraints caused by travel restrictions and government support programs for workers

Although the share of firms with labour shortages remains low, many businesses reported that the intensity of labour shortages has increased from extremely low levels 12 months ago (Chart 4, red line). These results on labour shortages and labour shortage intensity suggest that slack remains in labour markets but is being absorbed.

Firms reporting other capacity pressures mentioned supply chain frictions as a key bottleneck to production. Supply issues were cited across a wide range of raw materials and finished goods. These frictions are often tied to constraints on shipping capacity and are more common than before the pandemic. Most firms expect these constraints to persist until at least the end of 2021.

Chart 3: Capacity pressures are elevated

  Last observation:

Chart 4: Labour shortages remain modest

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

Plans to invest and hire to meet demand are widespread

Plans for higher capital expenditures continue to be widespread (Chart 5). Businesses hit hard by the pandemic increasingly intend to invest more in the next 12 months, although from low levels. Indeed, almost one-quarter of firms reported intentions to either resume or catch up on investment plans that were put on hold due to the pandemic. Plans for higher capital expenditures are frequently supported by healthy or improving outlooks on domestic and foreign demand. Businesses continue to report investing in digitalization and information technologies as part of their long-term strategic objectives—often to improve interaction with and management of customers and workers. For some firms, this investment has been accelerated in response to the pandemic.

Chart 5: Higher capital expenditure plans are supported by demand expectations

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

Employment intentions are at record-high levels. Most businesses across all regions and sectors plan to hire, suggesting a broadening labour market recovery (Chart 6). For many firms, hiring plans are supported by expectations of sales growth. This includes some businesses that are refilling positions as sales rebound from the pandemic. For the one-third of firms with staffing below pre-pandemic levels, plans to hire are now widespread. However, some of these businesses—such as those that directly provide high-contact services—do not anticipate a full return to pre-pandemic employment levels for at least the next 12 months. This suggests that some unevenness in labour demand across industries will persist.

Chart 6: Hiring plans are broad-based across regions and sectors

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

Firms report several sources of positive price pressures

Expectations of faster wage growth are at record-high levels and prevalent across all regions and sectors (Chart 7). However, this partly reflects base-year effects—several businesses expect to catch up on wages after little or no wage growth over the past 12 months. Firms also noted a few other factors that are contributing to upward pressure on wage growth:

  • a need to attract and retain skilled labour
  • a rapid increase in the cost of living (sometimes linked to housing)
  • an expected recovery in sales

Chart 7: Expectations of faster wage growth are widespread

* Percentage of firms expecting higher labour cost increases minus the percentage expecting lower labour cost increases Last observation:

Firms’ expectations for faster growth in input and output prices remain widespread but less so than in the spring survey (Chart 8). Businesses anticipate that input prices will grow at a greater rate because of ongoing upward pressure from higher commodity prices (e.g., for energy, lumber and food) and rising shipping and freight fees. For output prices, several businesses noted that stronger demand conditions will allow them to pass some of these higher costs on to their customers. Competition is the main factor limiting firms’ ability to raise prices.

When asked about price setting beyond the next 12 months, more than half of businesses indicated they expect to raise their selling prices at a pace similar to that before the pandemic (Chart 9). This is consistent with firms anticipating that many of the cost pressures driving their output prices higher will be temporary. Still, some businesses expect to increase their prices at a more rapid pace than before the crisis. They often attributed the faster growth to a catch-up after weak price growth or to expectations of continued growth in input prices.

Chart 8: Firms anticipate that input and output prices will increase at a faster pace

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

Chart 9: After the next year, output prices are expected to grow at a pace similar to that before the pandemic

Firms’ inflation expectations rose to a near-record high level. While one-third of businesses anticipate inflation will be above 3 percent over the next two years, more than half continue to expect it to remain in the Bank of Canada’s inflation-control target range of 1 to 3 percent (Chart 10). Firms with inflation expectations above 2 percent cited several contributing factors, including:

  • higher commodity prices, such as for energy and food
  • supply chain bottlenecks
  • expansionary fiscal and monetary policies
  • the release of pent-up demand

Most of these inflationary pressures are viewed as temporary but persisting until at least the end of 2021. A few businesses linked their expectations for higher inflation to ongoing increases in house prices.

Chart 10: The majority of firms anticipate inflation will be between 1 and 3 percent

Last observation:

Businesses expect interest rate increases to occur sooner compared with the winter survey (Chart 11). More than half of firms now anticipate that the prime rate on their loans will increase within the next two years. Similarly, the Canadian Survey of Consumer Expectations finds that consumers’ expectations for interest rates and short-term inflation have increased.

Chart 11: More than half of firms expect the prime rate on their loans to increase within the next two years

Note: This special-topic question was asked in the winter 2020 and summer 2021 Business Outlook Survey.

When do you expect the prime rate on your loans (from domestic lenders) to increase?Winter 2020 surveySummer 2021 survey
< 1 year4%33%
1–2 years24%24%
2–3 years34%10%
> 3 years14%3%
Not applicable/don't know24%30%

The Business Outlook Survey summarizes interviews conducted by the Bank’s regional offices with the senior management of about 100 firms selected to reflect the composition of the gross domestic product of Canada’s business sector. This survey was conducted by phone and video conference from May 11 to May 28, 2021. 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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