CANADA BUSINESS OUTLOOK POSITIVE

Canada's business outlook brightens

Canada's business outlook brightens

National Post

For the first time in two years, businesses across Canada reported an improvement in their past sales growth, reflecting a strengthening Canadian economy, the Bank of Canada said in its summer business outlook survey on Monday.
Buoyed by increased 12-month sales growth for the first time in two years, Canadian businesses are set to hire more workers and invest in new machinery to meet rising demand pressure, the Bank of Canada said Monday in its summer business outlook survey.

Expectations for sales are positive, with 53% of businesses looking forward to greater growth in the coming year compared with 29% forecasting less growth.

The balance of opinion for this metric, however, is only +25, down compared with the four previous quarters, suggesting businesses remain cautiously optimistic about the country’s prospects next year.

“Given the growing concern over the U.S. and global economic outlook, dimmer sales and investment expectations are not surprising,” Michael Gregory, senior economist with BMO Capital Markets, said in a note Monday.

Even so, credit conditions have eased in the past three months, suggesting a healthier financing environment.

“While the balances of opinion on future sales growth and investment are lower than in recent surveys, and firms are concerned about global uncertainties, overall they are positive about the outlook for business activity over the next 12 months,” the bank said in its report.

Meanwhile, businesses expect both input and output prices to increase at a greater rate in the next year, although the vast majority expect total CPI inflation to stay within the Bank of Canada’s ballpark range of between 1% and 3%.

Sentiment on investments in new machinery and equipment remains positive, although to a lesser extent than the previous survey. Many in the services sector have recently completed investments that are unlikely to be repeated within a year, but machinery spending is solid in the goods sector, the bank said.

In the second quarter of 2010, 49% of businesses said their sales volume increased at a greater rate than it did a year ago, compared with 31% who said it declined.

This is the first time the balance of opinion has come out in the black since the second quarter of 2008, when 39% replied in the positive and 32% in the negative.

As for production and labour, a greater number of businesses at 39% said they would have difficulty meeting an unexpected increase in demand, compared with 30% in the first quarter.

Businesses may be looking to make additional hires, as the percentage of firms looking to decrease their level of employment has slipped to 10% from 12% in the prior quarter. The percentage of outfits that expect to increase their level of employment remains the same at an even 50%.

“This positive sentiment, supported by firms’ expectations of improving demand and plans for expansion, is widespread across all regions and most sectors,” the bank said.

Labour shortages are also not considered a factor, as the majority of companies consider the intensity of labour shortages to be either the same or less intense than this time last year. Only 12% of those surveyed said their businesses faced shortages that would actually restrict their ability to meet demand.

“The slight gain on the hiring side was a bit surprising, suggesting that the demand for labour remains robust,” Gregory said. “(This also suggests) recent strong employment growth readings, such as Friday’s surprising +93,200 print, are indeed indicative of a solid underlying trend.”

Overall, the latest positive results add weight to the argument for fiscal tightening from the Bank of Canada sooner rather than later, he said.

The Bank of Canada surveys senior management of about 100 firms based on the make-up of the country’s gross domestic product several times a year. The summer survey is based on results compiled between May and June.
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