In 2016 and 2017, the Bank of Canada added questions to the Business Outlook Survey that asked firms to specify whether their sales volumes, employment, investment, input prices and selling prices over the next 12 months were expected to increase significantly, increase slightly, remain the same, decrease slightly or decrease significantly.1 These questions supplemented existing ones about the expected change in growth of sales volumes and input and selling prices, and the expected change in levels of employment and investment.2 The responses to these questions give the Bank insights into expectations for business activity as well as the potential sources of inflationary pressures in Canada.
This document describes how the responses are aggregated. It also examines the correlations between each of these aggregated responses and the macroeconomic and price measures they are meant to shed light on.
Results are expressed as a double-weighted balance of opinion. This is calculated as the percentage of businesses reporting increases minus the percentage reporting decreases, with double weight given to responses of significant increase or decrease. With the double weighting, the balance of opinion can range from -200 to +200.
Table 1 shows the correlation between each of the different double-weighted balances of opinion and the year-over-year changes in macroeconomic data they are intended to track.
Responses across all the questions have moderately strong correlations with the relevant macroeconomic data in the same quarter or one quarter ahead.3 Specifically, correlations are moderately strong between:
- sales volumes, magnitude of change, and growth of gross domestic product (GDP), contemporaneously
- investment spending in machinery and equipment, magnitude of change, and investment in machinery and equipment, contemporaneously
- number of employees, magnitude of change, and growth in private sector employment from the Survey of Employment, Payrolls and Hours, contemporaneously
- input prices, magnitude of change, and the Industrial Producer Price Index, contemporaneously
- selling prices, magnitude of change, and the consumer price index, one quarter ahead
Table 1: Correlations between questions on magnitude of change and macroeconomic measures
| BOS series at time t | Macroeconomic measures* | t - 2 | t - 1 | t | t + 1 | t + 2 | t + 3 | t + 4 |
|---|---|---|---|---|---|---|---|---|
| Sales volumes, magnitude of change over the next 12 months | GDP (y/y) | -2% | 25% | 72% | 48% | 37% | 13% | -24% |
| Investment spending, magnitude of change over the next 12 months | Investment in machinery and equipment (y/y) | 14% | 42% | 63% | 49% | 39% | 7% | -24% |
| Number of employees, magnitude of change over the next 12 months | SEPH private sector employment (y/y) | 15% | 40% | 61% | 57% | 50% | 31% | 15% |
| Input prices, magnitude of change over the next 12 months | IPPI inflation (y/y) | 55% | 64% | 78% | 70% | 49% | 21% | -17% |
| Selling prices, magnitude of change over the next 12 months | CPI inflation (y/y) | 30% | 46% | 69% | 79% | 75% | 65% | 44% |
* Quarterly averages of monthly price levels; y/y means year-over-year.
Note: Peak correlations are in bold. BOS is the Business Outlook Survey. GDP is gross domestic product. SEPH is Survey of Employment, Payrolls and Hours. IPPI is the Industrial Product Price Index. CPI is the consumer price index.
The following charts show that the results from these questions track the macroeconomic data they are meant to shed light on relatively well over time.
Chart 1: Sales volumes, magnitude of change, and GDP growth
Chart 2: Investment spending, magnitude of change, and growth of investment spending on machinery and equipment
Chart 3: Number of employees, magnitude of change, and SEPH employment growth
Chart 4: Input prices, magnitude of change, and IPPI inflation
Chart 5: Selling prices, magnitude of change, and CPI inflation
Appendix
Table A-1: Question name and text
| Question name | Question text |
|---|---|
| Section 1: Sales | |
| Sales growth, change over the next 12 months (balance of opinion) | Compared with the past 12 months, do you expect your firm’s sales volumes over the next 12 months to increase at a greater rate, a lesser rate or the same rate? |
| Sales volumes, magnitude of change over the next 12 months (double-weighted balance of opinion) | Compared with the past 12 months, do you expect your firm’s sales volumes over the next 12 months to increase, decrease or remain the same? Response options: decrease significantly, decrease slightly, remain the same, increase slightly, increase significantly |
| Section 2: Investment | |
| Investment spending, change over the next 12 months (balance of opinion) | Compared with the past 12 months, do you expect your firm’s investment spending on machinery and equipment over the next 12 months to be higher, lower or the about same? |
| Investment spending, magnitude of change over the next 12 months (double-weighted balance of opinion) | Compared with the past 12 months, do you expect your firm’s investment spending on machinery and equipment over the next 12 months to be higher, lower or the about same? Response options: significantly lower, somewhat lower, about the same, somewhat higher, significantly higher |
| Section 3: Employment | |
| Number of employees, change over the next 12 months (balance of opinion) | Compared with today, do you expect your firm’s number of employees over the next 12 months to be higher, lower or about the same? |
| Number of employees, magnitude of change over the next 12 months (double-weighted balance of opinion) | Compared with today, do you expect your firm’s number of employees over the next 12 months to be higher, lower or about the same? Response options: significantly lower, somewhat lower, about the same, somewhat higher, significantly higher |
| Section 4: Prices | |
| Input price growth, change over the next 12 months (balance of opinion) | Compared with the past 12 months, do you expect the prices of products and services that your firm purchases over the next 12 months to increase at a greater rate, a lesser rate or the same rate? |
| Input prices, magnitude of change over the next 12 months (double-weighted balance of opinion) | Compared with the past 12 months, do you expect the prices of products and services that your firm purchases over the next 12 months to increase, decrease or remain the same? Response options: decrease significantly, decrease slightly, remain the same, increase slightly, increase significantly |
| Selling price growth, magnitude of change over the next 12 months (balance of opinion) | Compared with the past 12 months, do you expect the prices of products and services that your firm sells over the next 12 months to increase at a greater rate, a lesser rate or the same rate? |
| Selling prices, magnitude of change over the next 12 months (double-weighted balance of opinion) | Compared with the past 12 months, do you expect the prices of products and services that your firm sells over the next 12 months to increase, decrease or remain the same? Response options: decrease significantly, decrease slightly, remain the same, increase slightly, increase significantly |
Chart A-1: Investment spending, change and magnitude of change
Chart A-2: Number of employees, change and magnitude of change
Endnotes
- 1. The questions about sales volumes and input and selling prices were added in the first quarter of 2016; about investment in the second quarter of 2016; and about employment in the first quarter of 2017.[←]
- 2. The existing questions about expected change in levels of employment and investment are conceptually the same as the questions about magnitude of change, without asking about the magnitude. Comparisons of responses for both investment and employment can be found in Chart A-1 and Chart A-2 in the Appendix. Responses to existing questions can be found on the data page.[←]
- 3. Following the approach in M. Martin and C. Papile, “The Bank of Canada’s Business Outlook Survey: An Assessment,” Bank of Canada Staff Working Paper No. 2004-15 (April 2004), correlations are described as follows: strong correlation ranges from 0.80 to 1.00; moderately strong correlation ranges from 0.60 to 0.79; moderate correlation ranges from 0.40 to 0.59; and weak correlation ranges from 0.20 to 0.39.[←]