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Results of the second-quarter 2022 survey | Vol. 19.2 | July 4, 2022

Results from the Business Outlook Survey for the second quarter of 2022, along with those from the April, May and June 2022 Business Leaders’ Pulse surveys, suggest that capacity pressures remain elevated and expectations of significant price increases continue to be widespread. Firms anticipate that sales growth will begin to moderate from exceptionally high rates as signs of greater uncertainty emerge.


  • Many businesses continue to expect strong sales growth, but an increasing number of these firms expect the pace of growth to return to normal following a fast recovery from the pandemic. Some firms also anticipate that labour shortages will limit growth in their sales.
  • The number of businesses reporting labour-related constraints and supply chain bottlenecks remains at a record high, suggesting that supply is not keeping up with demand. About half of firms with supply chain challenges expect them to persist until the end of 2023 or beyond.
  • Supported by strong demand, many firms intend to increase their investment spending and add staff over the next year. A few businesses mentioned that the prices of capital goods along with rising interest rates may potentially affect the viability of their capital expenditure plans, but such factors are not yet holding them back.
  • As in recent surveys, many businesses anticipate significant wage and price increases. Pressures on input and output prices continue to be linked to supply chain issues.
  • Businesses’ expectations for near-term inflation have increased, and firms expect inflation to be high for longer than they did in the previous survey. Still, most see inflation returning to 2% over time. They noted various factors needed for inflation to return to target, including higher interest rates, improved supply chains, lower oil prices and a resolution of the war in Ukraine.
  • Consultations with firms and experts in the energy sector suggest that growth in capital expenditures will be robust but less than in previous commodity price booms (Box 1).

The BOS indicator remains elevated amid increased uncertainty

The BOS indicator has stayed high in the second quarter (Chart 1). Businesses continue to view capacity pressures as elevated, and they expect wages and prices to grow at a faster pace. Improvements in firms’ sales indicators suggest ongoing sales growth ahead and support their plans to invest more and hire.

Increased uncertainty about the economic environment was an emerging theme in both the BOS and the BLP. The sources of uncertainty include the:

  • persistence of inflation, rising interest rates and the impact on demand
  • continuation of supply chain issues
  • ongoing war in Ukraine
  • evolution of the pandemic (including the return of demand for high-contact services, and the chance of another wave)

Most firms saw this uncertainty as creating risks to their outlook but not yet further affecting their operations or sales expectations.

Chart 1: The BOS indicator remains elevated

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

Firms expect strong but somewhat slower sales growth

Expectations that sales growth will moderate are widespread (Chart 2, blue bars). Firms largely attribute this softening to a shift toward normal demand conditions—after an exceptionally rapid recovery from the pandemic for some. Still, these businesses continue to expect strong growth, supported by improved order books and increased sales inquiries from domestic and foreign customers (Chart 2, red line). Businesses with slowing sales growth are mainly linked to housing, natural resources and transportation. Some firms also anticipate that labour-related constraints will limit their sales growth.

Other businesses expect their sales to grow faster over the next year. These include firms that were hit hard during the pandemic, such as those tied to hard-to-distance services. They attribute their positive outlook to eased restrictions and pent-up demand.

Chart 2: Reports of improved indicators of future sales continue to be widespread

Chart 2: Reports of improved indicators of future sales continue to be widespread

Future sales (balance of opinion*): Over the next 12 months, is your firm’s sales volume expected to increase at a greater, lesser or the same rate as over the past 12 months? Indicators of future sales (balance of opinion†): Compared with 12 months ago, have your recent indicators (order books, advance bookings, sales inquiries, etc.) improved, deteriorated or remained the same?

* 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 deteriorated Last observation:

Demand is outstripping supply

Due to a combination of sustained growth in demand and challenging supply conditions, indicators of capacity pressures suggest the presence of excess demand in the economy. The number of businesses reporting labour-related constraints and supply chain bottlenecks remains elevated (Chart 3). Some firms noted that lockdowns in China were a recent source of difficulties.

Chart 3: Labour and supply chain bottlenecks continue to constrain supply

* Mentions of a fully utilized labour force and an inability to find suitable new labour at the current wage are counted as labour bottlenecks. Mentions of raw material constraints, transportation difficulties and logistics issues are counted as supply chain bottlenecks. Firms could mention more than one bottleneck; mentions were then pooled and counted only once by type of bottleneck.Last observation:

Challenges in supply chains are taking longer to resolve than previously anticipated, according to respondents in the BOS and BLP, with many businesses expecting them to persist until the end of 2023 or beyond. Results from the Canadian Survey of Consumer Expectations show a similar pattern. To minimize the impact of supply chain disruptions on their operations, firms are using various strategies (Chart 4), including:

  • reconfiguring their supply chains by
    • changing or adding suppliers
    • ordering in advance
    • substituting inputs
  • holding more inventory than usual

Chart 4: In response to supply chain issues, firms are reconfiguring their supply chains and carrying more inventory

Reconfiguring supply chains2217211927
Holding more inventory710231723

For four consecutive quarters, the share of firms reporting labour shortages as being more intense than a year ago has been at or near a record-high level (Chart 5, red line). This suggests the labour market has tightened significantly over the past two years. Initially, this tightening reflected a recovery relative to weak labour markets; in the past two quarters, the tightening has continued but is relative to more normal labour market conditions.

In addition, the number of businesses reporting labour shortages remains elevated (Chart 5, blue bars). Firms continue to link labour shortages to various factors, including:

  • aging populations
  • changes in workers’ job preferences
  • strong competition for workers

Nearly half of firms anticipate labour shortages will be just as intense 12 months from now.

Chart 5: Reports of labour shortages are widespread

Chart 5: Reports of labour shortages are widespread

Labour shortages: Does your firm face any shortages of labour that restrict your ability to meet demand? Intensity of labour shortages (balance of opinion*): Compared with 12 months ago, are labour shortages generally more intense, less intense or about the same intensity?

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

Firms plan to invest more and hire in response to ongoing strong demand

The number of firms intending to increase their investment spending remains high (Chart 6). Their plans continue to be supported by:

  • strong domestic and foreign demand
  • long-term strategic plans
  • a need to expand capacity or improve productivity, often through digitalization and automation amid labour shortages

Capital expenditure growth in the energy sector will also be robust, but it will be muted compared with previous commodity price booms (Box 1).

Some firms plan to reduce their investment spending after significant capital expenditures in recent years. A few businesses noted that the prices of capital goods and higher interest rates may potentially affect the viability of their investment plans, but such factors are not yet holding them back.

Intentions to hire also remain widespread and are supported by robust demand. However, several businesses expect labour shortages to negatively impact their plans. Many firms reported offering higher wages when competing with other businesses to recruit workers.

Chart 6: The majority of firms intend to increase investment spending and add staff

Chart 6: The majority of firms intend to increase investment spending and add staff

Investment intentions (balance of opinion*): Over the next 12 months, is your firm’s investment spending on machinery and equipment expected to be higher, lower or the same as over the past 12 months? Employment intentions (balance of opinion†): Over the next 12 months, will the number of employees (full-time equivalent) at your organization (in Canada) be higher, lower or the same?

* Percentage of firms expecting higher investment spending minus the percentage expecting lower investment spending
† Percentage of firms expecting higher employment levels minus the percentage expecting lower employment levelsLast observation:

Many firms continue to expect large increases in wages and prices

The average expected wage increase climbed to a survey-high level (Chart 7). Many firms continue to report plans for raising wages to attract and retain workers (Chart 8). In addition, a growing number of businesses mentioned the rising cost of living as an important source of wage growth. Nearly half of firms anticipate their wage increases will remain above pre-pandemic levels beyond the next 12 months.

Many businesses said their non-wage compensation (e.g., vacation days, health benefits, the ability to work remotely) is more generous than it was before the pandemic. They noted this shift is to help retain staff and improve productivity (e.g., by reducing the number of sick days).

Chart 7: Businesses see wages rising at a faster rate

Chart 7: Businesses see wages rising at a faster rate

Wages (balance of opinion*): Over the next 12 months, are increases in labour costs (wages per hour) expected to be higher, lower or about the same rate as over the past 12 months? Average expected wage increase (year-over-year percentage change): What do you expect your average wage increase to be next year?

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

Chart 8: Inflation-related pressures—particularly the rising cost of living—are viewed as an important source of wage growth

Inflation or cost-of-living adjustment26434659
Retain workers37545961
Attract workers45545152
Catch up to market rates10202620

After the large increases in input and output prices they have seen over the past 12 months, many businesses continue to expect these prices to rise significantly and at a greater rate (Chart 9). The main source of faster cost growth is higher service-related input prices—particularly those related to subcontracting, insurance, rent and interest rates. In addition to expecting higher commodity prices, many businesses continue to anticipate significant increases in the prices of non-commodity inputs—often due to supply chain challenges.

Firms expect faster growth in their output prices as they plan to:

  • pass on to customers some of these costs, including
    • increased costs related to supply chain frictions
    • rising wages
  • improve their margins—for some, after having seen a deterioration over time

Some downward pressure on output prices was noted by firms that expect to compete for increasingly price-sensitive customers.

Chart 9: Many firms expect significant increases in their input and output prices

Last observation:

Businesses expect inflation to be high for longer

Firms’ expectations for near-term inflation have increased in the BOS and BLP (Chart 10). Their longer-term expectations remain stable between 2% and 3%.

Most businesses anticipate inflation will be more than 3% on average over the next two years. They continue to point to inflationary pressures from:

  • ongoing supply chain issues
  • elevated commodity prices
  • strong economic conditions

Several firms also noted that the war in Ukraine is adding additional pressure to supply chains and is keeping commodity prices high.

Compared with last quarter, businesses expect inflation to be high for longer (Chart 11). Nearly one-quarter of firms expect inflation to stay well above 2% for three years or more.

Chart 10: Expectations for short-term inflation are still rising, while those for the longer term are stable

Note: BLP is the Business Leaders’ Pulse survey and BOS is the Business Outlook Survey. The BOS 2‑year estimate is based on firms’ responses to the BOS question, “Over the next two years, what do you expect the annual rate of inflation to be, based on the consumer price index?” Firms can select from predetermined ranges and provide a point estimate. In cases where a firm selects a range only: if the range is closed, a midpoint is used; if the range is open‑ended, the average expectation of other firms in that range is used. The BLP survey asked businesses, “What do you expect the rate of annual inflation to be in about one, two and five years from now?” BLP estimates use the midpoints of multiple-choice buckets, with values assigned to open-ended buckets (-1% and 9% for the "deflation" and "8% or higher" buckets, respectively).Last observation:

Chart 11: More firms see inflation remaining above target for at least three years

Not asked/don't know2019.825.7
Less than 1 year107.92
1—2 years3228.718.8
2—3 years2629.731.7
3—4 years56.97.9
4—5 years337.9
More than 5 years445.9

When asked what circumstances would need to be in place for inflation to return to 2%, firms referred to:

  • higher interest rates
  • improved supply chains
  • lower oil prices
  • ceased conflict in Ukraine

Some firms noted that an eventual recession, which they often attributed to higher interest rates, would support or be needed for a return of inflation to 2%. A few businesses also said that labour costs are contributing to rising inflation and that increased immigration or a slowing economy would be necessary to reduce wage pressures.

Almost all businesses continue to expect inflation to return to 2% within the next five years, but BLP results suggest a high degree of uncertainty around expectations. That is, although nearly half of businesses are confident that the Bank will return inflation to its target within the next five years, other firms pointed to international factors, such as global supply chain issues and elevated prices for oil and other commodities, as impediments.

Box 1: The energy sector’s capital expenditures will grow but are expected to fall short of past highs

To better understand the impact that the surge in oil and natural gas prices is having on capital expenditures in the energy sector, Bank of Canada staff held consultations with Canadian oil and gas firms and industry analysts.1 Participants reported that soaring prices over the past year support positive business sentiment, a healthy improvement in profit margins and heightened activity in the sector. Many conventional oil and natural gas producers are focusing on expanding drilling in areas where supporting infrastructure is readily available. Producers of heavy oil are improving efficiency and maximizing capacity utilization for existing oil sands projects.

Although prevailing crude and gas prices far exceed costs for all types of extraction in Canada, investment in new projects and sites is less robust than it was in previous commodity price booms. Several factors are holding back capital expenditures:

  • Financial discipline remains a top priority for firms. After many years of financial stress, most producers are using the current revenue windfall to improve their balance sheets, reduce their debt and pay dividends to shareholders. Only around 40% of estimated cash flow is currently being set aside for capital expenditures compared with an average above 100% in the years before the pandemic (Chart 1-A).

Chart 1-A: Capital expenditures in the energy sector as a share of cash flow will be modest

Sources: Toronto-Dominion Bank, Bank of Canada and Bank of Canada calculationsLast data plotted: 2022

  • The transition to low-carbon energy is considered an opportunity by some energy producers, but it also creates uncertainty about demand for hydrocarbon resources over the long life cycle of projects. In addition, the industry is actively attempting to reduce its own carbon emissions, with most firms reporting that both governments and capital markets continue to tighten expectations around climate change targets. Carbon capture and related projects are broadly supported by the industry but require costly investment up front.
  • Pipeline capacity remains sufficient over the next two to three years, according to most firms. However, it continues to be seen as a major bottleneck over the long term. Industry participants see regulation as holding back further pipeline and infrastructure development.
  • Labour shortages and supply chain bottlenecks are making energy investment more challenging. Competition for labour is particularly strong for oil-field service firms that are seeing high turnover among drilling and well-service crews. The industry faces significant upward price pressure on input costs. Drilling and other well-service pricing was reported to be up by 10% to 15% over the 2021–22 winter season. Some participants anticipate further increases by the end of the year.

For these reasons, consultation participants expect modest growth in capital investments in the energy industry over the medium term. The main exceptions are two major offshore oil production projects in Newfoundland and Labrador.

  1. 1. Consultations were held from May 9 to 30, 2022. The sample included representatives from 13 oil and gas firms and 3 energy analysts at chartered banks in Calgary. During the consultation period, prices for West Texas Intermediate and Henry Hub averaged US$110 per barrel and US$8.21 per metric million British thermal units (MMBtu), respectively.[]

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, video conference and in-person interviews from May 9 to May 27, 2022. 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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