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Results of the first-quarter 2024 survey | Vol. 21.1 | April 1, 2024

Business sentiment and sales growth expectations have stopped falling, according to firms responding to the Business Outlook Survey and the Business Leaders’ Pulse. But demand remains subdued, which is allowing price pressures and the labour market to ease. As a result, fewer firms than in the previous survey are planning unusually large or frequent price increases over the next 12 months.


  • Firms reported that demand remains weak overall. But there are some signs of returning optimism. Namely, indicators of business conditions, sales outlooks and employment intentions have changed direction after many quarters of decline. In the wake of weak past sales growth, expectations for improved sales are supported by population growth, efforts to enter new markets or develop new products, and expectations that interest rates will decline over the next 12 months.
  • Businesses are moderating their investment plans in response to high borrowing costs, persistently weak demand and easing capacity pressures. In this environment, fewer firms feel the need to expand. Instead, more businesses are focusing their investment on maintaining existing capacity.
  • Firms are finding it easier to fill job vacancies. Wage growth remains high, although most businesses expect it to slow as wages catch up with cost-of-living increases.
  • Businesses’ pricing behaviour is continuing to normalize. But the slow moderation in wage growth and the gradual pass-through of high costs are keeping output price growth elevated.

Business sentiment remains weak but shows signs of improvement

Firms reported that business conditions improved slightly in the first quarter (Chart 1). The uptick in sentiment follows nearly two years of deterioration and is reported widely across nearly all regions, sectors and firm sizes. Moreover, fewer businesses than last quarter are planning for a recession in Canada over the next 12 months (Chart 2).

Chart 1: Business sentiment has improved slightly

Chart 2: Fewer firms are planning for a recession

Firms’ concerns have generally continued their trends observed in recent quarters (Chart 3). Fewer businesses are reporting binding capacity constraints—namely labour shortages and supply chain challenges—while their main concerns continue to shift toward demand, uncertainty and credit. Cost pressures also remain a top concern, with nearly half of all firms still reporting larger-than-normal increases in their costs. And more businesses than in previous quarters reported taxes and industry-specific or localized regulations as a pressing concern.

Chart 3: Demand, costs and uncertainty remain firms’ top concerns

Interest rates continue to curb demand

Indicators of demand remain soft. Sales growth over the past year has been sluggish, particularly for firms tied to discretionary consumption or residential real estate. When discussing weak demand, businesses often referred to customers’ financial situations and the recent economic slowdown in Canada. About three-quarters of firms said that interest rates are negatively affecting their business, often by reducing demand for their products and services. This is similar to results from recent quarters, and the impacts of interest rates are widespread across sectors.

Firms’ sales outlooks for the next 12 months suggest that economic activity will remain subdued. Specifically, firms’ indicators of future sales (e.g., order books, advance bookings, sales inquiries) are roughly unchanged from 12 months ago (Chart 4, red line), a weak result relative to the historical average. Further, survey results point to a continued period of slow economic growth, with firms expecting their future sales growth to be similar to that of the past 12 months (Chart 4, blue bars).

Chart 4: Firms’ outlooks on sales remain subdued

However, there are some signs of returning optimism about demand, with indicators changing direction after many quarters of decline. In particular, firms hampered by reduced consumer spending over the past 12 months expect their sales growth to increase over the next 12 months. Among businesses anticipating that sales growth will improve in the next year, around half pointed to their expectations that interest rates will decline. This conditional expectation of a turnaround in sales growth is particularly apparent in sectors such as housing that are sensitive to interest rates. Several firms also noted robust population growth continuing to support their sales going forward. Still, many are taking it upon themselves to grow their customer base, including by:

  • increasing marketing efforts
  • keeping prices competitive
  • tailoring product and service offerings to consumers who are more financially constrained than before

Investment intentions have become weak

Firms’ capacity constraints are largely unchanged from last quarter, well below their 2022 peak (Chart 5). The share of firms that would have some difficulty meeting an unexpected increase in demand grew this quarter, but the share of firms that would have significant difficulty has fallen to just 6% after peaking at 30% in early 2022. The current environment of subdued demand has allowed these significant capacity pressures to ease. Remaining challenges are often related to pockets of tightness, including:

  • labour shortages, often structural in nature, tied to either long-term demographic challenges or specific occupations and sectors
  • lingering supply chain issues, often resulting in minor negative impacts such as extended lead times to obtain specific items

Chart 5: Firms are facing fewer significant capacity constraints

In this context, firms’ investment intentions have become weak relative to historical levels (Chart 6). Firms attribute their modest investment plans to:

  • continued uncertainty and generally soft demand
  • fewer binding capacity constraints
  • high borrowing costs
  • recent weakness in certain commodity prices, particularly natural gas

Part of the moderation in investment intentions can be attributed to the long-lasting impacts of past interest rate increases, as long-term projects that were financed when interest rates were lower are completed. Instead of starting new projects to boost productivity or expand output, many firms are focusing their investment plans on simply repairing or replacing machinery and equipment to maintain their current capacity.

Chart 6: Investment intentions are weak

Firms said credit conditions are largely unchanged from three months ago, following two years of tightening (Chart 7). Around three-quarters of firms that reported easing credit conditions cited lower borrowing costs. This reflects the decline in long-term bond yields in recent months.

Chart 7: Firms no longer report tightening credit conditions

Labour shortages continue to decline, but wage growth is still high

Less than one-quarter of firms reported binding labour shortages—on balance, firms indicated that labour market tightness has lessened compared with 12 months ago (Chart 8). Easing labour conditions reflect both weaker demand for new workers and a greater supply of available workers in the labour market.

For the 43% of firms that intend to hire, their plans to expand their workforce over the next 12 months are driven by rising business sentiment, modestly improved demand outlooks and a more balanced labour market.

Chart 8: Labour markets continue to ease

Businesses expect wage growth to be slower than it was over the past 12 months, reflecting easing labour market conditions. However, at 4.1%, planned wage adjustments remain higher than average (Chart 9). Firms indicated that when setting wages, they still need to account for the high cost of living:

  • More than 60% of firms said the cost of living is influencing their wage-setting decisions, but less than one-third of these firms said it is putting more pressure on wage growth than it was last year.
  • Businesses with inflation expectations above 3% expect larger wage increases over the coming year than other firms do.

Normalization of wage setting remains a gradual process. Just over 40% of businesses—a similar proportion to last quarter—indicated their wage increases are no longer abnormally high. The share of businesses expecting abnormally high wage growth to persist through 2025 has increased to 23% from 14% last quarter.

Chart 9: Expected wage growth is slowing but remains unusually high

Firms’ pricing behaviour is still normalizing

Firms expect their input costs and selling prices to go up over the next 12 months by less than they went up over the past 12 months. The shares of firms expecting costs and selling prices to increase significantly have declined markedly from their peaks in 2022 (Chart 10). Businesses planning smaller price increases than over the past 12 months noted the following contributing factors:

  • weaker demand and heightened competition
  • continued pass-through of lower costs related to materials and supply chains
  • slowing wage growth

Chart 10: Expectations for significant increases in costs and selling prices are near normal levels

Fewer firms plan to make unusually large or frequent price increases over the next 12 months (Chart 11). This shrinking minority of firms point to a few factors keeping them from returning to normal pricing behaviour:

  • wage growth well above pre-pandemic norms
  • incomplete pass-through of high costs from previous years
  • profit margins that have yet to fully recover to normal levels for some firms

Chart 11: Share of firms planning unusually large or frequent price increases is declining steadily

Inflation expectations continue to decline steadily

Short-term inflation expectations continued their gradual downward trend (Chart 12). Firms believe that monetary policy is relieving upward pressure on inflation from demand and from capacity constraints. Meanwhile, cost increases related to housing, food and wages are slowing the decline in inflation expectations.

Only 27% of firms in the Business Outlook Survey expect inflation to persist above 2% beyond three years, down from 37% last quarter.

Chart 12: Short-term inflation expectations continue to gradually decline

Survey results report opinions expressed by the respondents and do not necessarily reflect the views of the Bank of Canada.

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 February 5 to 23, 2024. Additional information on the survey and its content is available on the Bank of Canada’s website.

The Bank of Canada’s Business Leaders’ Pulse is a survey of 700 to 1,000 Canadian business leaders who respond to one of three short online questionnaires each month. This publication contains results from the January, February and March 2024 surveys. For more information on the Business Leaders’ Pulse, see T. Chernis, C. D’Souza, K. MacLean, T. Reader, J. Slive and F. Suvankulov, “The Business Leaders’ Pulse—An Online Business Survey,” Bank of Canada Staff Discussion Paper No. 2022-14 (June 2022).

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