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Results of the third-quarter 2022 survey | Vol. 19.3 | October 17, 2022

Business confidence has softened, according to results from the third-quarter 2022 Business Outlook Survey and the July through October 2022 Business Leaders’ Pulse surveys. Many firms expect slower sales growth as interest rates rise and demand growth shifts closer to pre-pandemic levels. Early signs suggest that pressures on prices and wages have started to ease, but firms’ inflation expectations remain high.


  • Businesses expect their price increases to moderate due to downward pressure on prices for commodities and other input goods. They also expect their wage increases to soften from high levels. Firms’ short-term inflation expectations remain above the Bank of Canada’s inflation target.
  • Firms’ sales outlooks have softened. Businesses with sales linked to housing activity and household consumption expect weaker sales growth due to rising interest rates. Other firms anticipate their sales growth will be healthy but slower than earlier in the economic recovery from the COVID‑19 pandemic. Amid emerging signs of moderating growth in demand, firms’ plans to invest more and hire eased slightly from previously high levels.

Business confidence has softened but is still positive

Results from the Business Leaders’ Pulse (BLP) show that business sentiment remains positive but has trended down since April (Chart 1). The Business Outlook Survey (BOS) indicator also declined this quarter (Chart 2), with results for several survey questions moving down from elevated levels. Part of the decrease in business confidence reflects a moderation in firms’ sales outlooks. Some businesses linked to housing activity expect higher interest rates to hurt their sales. After experiencing a sharp recovery from the pandemic, other firms now anticipate a slower—although still healthy—pace of sales growth.

Chart 1: Business sentiment is trending down

* Percentage of firms reporting positive sentiment minus the percentage reporting negative sentiment; double-weighted balance of opinion; range of potential outcomes is from -200% to 200%.
Note: This question was not asked in September. October results are preliminary and range from October 1 to 12.
Source: Business Leaders’ Pulse

April 202267%
May 202256%
June 202247%
July 202258%
August 202249%
October 202225%

Chart 2: The BOS indicator has declined

* The BOS indicator is a summary measure of the main Business Outlook Survey (BOS) questions that gauges overall business sentiment. Last observation:

Short-term inflation expectations have edged down but remain elevated

Firms’ expectations for inflation over the short term eased this quarter but remain above the Bank’s inflation target (Chart 3). Businesses continue to link inflationary pressures to:

  • global factors
    • elevated commodity prices often tied to the ongoing war in Ukraine
    • persistent supply chain issues
  • domestic influences
    • strong demand
    • high labour costs

Firms’ expectations for long-term inflation are much closer to target and have been stable for the past few quarters. Most businesses that expect inflation to be substantially above 2% anticipate that it will return to target within three years. They mentioned various conditions necessary for inflation to return to target:

  • higher interest rates
  • lower commodity prices, which some associated with an end of the war in Ukraine
  • improved supply chains

Chart 3: Firms’ short-term inflation expectations continue to be high

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). This question was not asked in the BLP in January or March 2022. October results are preliminary and range from October 1 to 12.Last observation:

Businesses expect their input prices and selling prices to grow at a slower rate than over the past 12 months (Chart 4 and Box 1). They link expectations of slower growth in input and output prices to downward pressure on prices for commodities and other input goods, including those affected by supply chain disruptions (Chart 5). For businesses with sales linked to housing and household consumption, softer demand due to rising interest rates is also limiting their expected increases in output prices. Firms anticipate stable price pressures from costs for services, such as transportation and freight. Several firms expect upward pressure on their output prices as they continue to pass on higher labour costs to their customers.

Chart 4: Businesses expect growth in their input and output prices to slow

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

Chart 5: Labour costs remain a source of upward pressure on firms’ output price expectations

* Number of firms citing upward pressure on output price growth minus the number citing downward pressure
† Average net number of firms for each category, 2014Q2 to 2022Q3

Labour cost pass-through713193528227.3
Non-labour cost pass-through1914302016-58.1
Commodity price pass-through157383-185.3
Competitive environment-18-4-2-1-11-8-10.1
Service cost pass-through1118172221-214.5

Box 1: Firms’ price-setting behaviour returns to pre-pandemic approaches

During the recovery from the pandemic, many businesses changed their price-setting behaviour in response to an environment with:

  • elevated cost growth
  • strong demand
  • widespread supply constraints

Because businesses and their competitors faced similar supply chain difficulties, the lack of choice made customers more willing to accept higher prices. Firms’ ability to pass on higher costs to their customers increased. Under these conditions, firms made price changes that were larger and more frequent than usual. As in pre-pandemic periods, businesses set prices based mainly on their own costs and competitive conditions—not on past or expected inflation. In other words, during the recovery, firms’ inflation expectations—even when elevated—did not play a major role in their pricing decisions.

In the third quarter, most businesses that adjusted their price-setting practices have already returned to or will soon return to their pre-pandemic behaviour, including:

  • changing prices infrequently
  • waiting for signs of concrete cost increases
  • paying close attention to competitors’ prices

Still, some firms anticipate that unusual price setting will continue until supply chain and inventory issues are resolved.

Firms’ average expected wage increase has receded (Chart 6). Many businesses, but fewer than in recent quarters, are planning faster wage growth to attract and retain workers or to adjust their pay to the rising cost of living. Nearly half of firms do not expect abnormally high wage growth to last beyond the next 12 months as demand slows due to rising interest rates and as supply chain disruptions ease.

Chart 6: Firms’ average expected wage increase has declined

Chart 6: Firms’ average expected wage increase has declined

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:

Capacity pressures are still high but show early signs of easing

Pressures on businesses’ production capacity are still high. Firms’ main bottlenecks remain related to labour constraints and supply chain issues (Chart 7). However, survey results provide early signals that capacity pressures are becoming less severe:

  • For the first time in the past five quarters, businesses reported that their supply chains had improved compared with three months ago.
  • Several firms—more than in recent quarters—noted an easing in labour market tightness. They described seeing a decline in competition for labour, including less poaching, compared with 12 months ago.

Chart 7: Labour and supply chain bottlenecks may have peaked

* 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:

Firms expect sales growth to slow

Businesses anticipate that their sales will grow at a slower pace over the next 12 months (Chart 8, blue bars). Furthermore, a greater number of firms than in the last survey reported that their future sales indicators (e.g., order books, sales inquiries) have worsened compared with a year ago (Chart 8, red line). Businesses with sales directly or indirectly linked to housing activity and household consumption anticipate weaker sales growth due to interest rate increases. This is consistent with results from the Canadian Survey of Consumer Expectations—individuals, especially those with higher levels of debt, reported they are being negatively affected by rising interest rates. Other BOS respondents, including those tied to hard-to-distance services, expect their sales growth to remain healthy but to moderate to a more normal rate after the period of exceptional strength they recently experienced. Firms linked to commodities or technology continue to have a positive sales outlook.

Chart 8: Many firms reported deterioration in their indicators of future sales

Chart 8: Many firms reported deterioration in their indicators of future sales

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 deterioratedLast observation:

Most BLP respondents think the probability of a recession in Canada in the next 12 months is at least 50% (Chart 9). While many firms anticipate a recession, those not linked to housing activity and other household consumption do not expect it to have a large impact on demand for their products or services. When asked what would trigger a recession, business leaders indicated that large increases in interest rates and high prices reducing consumption would be the most likely factors (Chart 10).

Chart 9: Most businesses think a recession is likely

Note: Results shown here are for August and September 2022.
Source: Business Leaders’ PulseLast observation: September 2022

Less than 30% chance21%
30% to 50% chance18%
50% to 80% chance35%
80% to 100% chance23%
Don't know3%

Chart 10: Firms see rising interest rates and high prices as main triggers of a recession

Chart 10: Firms see rising interest rates and high prices as main triggers of a recession

What do you think will most likely trigger a recession?* (share of firms)

* Respondents were asked to select all that apply. Additional options not shown here include Other and I don't think there will be a recession in the next 12 months. Results shown here are for August and September 2022.
Source: Business Leaders’ PulseLast observation: September 2022

Interest rates increasing substantially73%
High prices affecting consumer’ capacity to spend69%
Loss of confidence in the economy47%
Wages not keeping up with inflation43%
Insufficient household savings to support consumer demand33%
Falling house prices27%
Labour market weakening14%

Strength in investment and hiring plans eased slightly

Firms’ investment intentions remained positive but moderated for a third consecutive quarter (Chart 11). Plans to invest more are concentrated among businesses facing capacity constraints. These firms intend to invest in technology and automation to increase their production capacity—particularly in the context of elevated labour shortages. Businesses’ plans to increase their capital expenditures also remain supported by their long-term investment intentions and healthy demand for their products and services. Meanwhile, with rising interest rates and signs of softer demand, some other businesses that do not need to expand their capacity are investing about the same as in the past 12 months.

Amid healthy demand and capacity constraints, BOS participants reported that increasing investment costs and further expected interest rate hikes are not yet holding back their investment plans. However, BLP results suggest some uncertainty around this sentiment. In July, two out of every five BLP respondents indicated they would delay or reduce some investment if borrowing costs were to increase by two percentage points.

Chart 11: Businesses with capacity pressures have solid investment plans

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

The number of businesses planning to hire has declined from high levels. A growing minority of firms, including those tied to housing activity, report that they plan to keep the size of their workforce stable over the next 12 months due to signs of weaker demand. Most other firms intend to hire—their plans continue to be supported by ongoing strong demand. However, some of these businesses noted that their hiring plans may be constrained by difficulties finding labour, particularly for skilled workers (e.g., information technology, engineering and trades).

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 August 15 to September 9, 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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