Optimism grows among Canadian firms, expectations for hiring positive
OTTAWA — Business optimism in Canada is rising sharply as the gloom of the winter months appears to be giving way to better expectations for sales, hiring and investment, a new Bank of Canada survey suggests.
The quarterly survey of senior management from 100 representative firms, conducted over four weeks in February and March, found the outlook for future sales among the most positive since the recession.
It showed 58 of the respondents expected higher sales in the next 12 months, as opposed to 23 that expected fewer.
The Bank of Canada’s important measure of business confidence was positive 35, a big turnaround from the negative four in its January report.
In the intervening period, there appeared to be some resolution of the European debt situation and the United States economy showed signs of improved growth.
“The results of the spring survey point to more optimism among firms,” said the central bank’s report Monday.
“With modestly improved expectations for near-term U.S. economic growth and fewer concerns about the global economic and financial situation, some of the dampening effects on sales expectations have subsided, and more firms report that recent indicators of future sales activity, such as order books and new contracts, have improved compared to a year ago.”
Canadian firms are also reporting positive spillover effects from strong commodity prices for natural resources that Canada sells the world, the Bank of Canada said.
The results are in line with what has been a mostly improving climate for business. Europe’s debt crisis was recently downgraded by the Bank of Canada to a “chronic” problem, and U.S. growth has been stronger than anticipated.
On Thursday, Statistics Canada reported 82,000 jobs were added in March, reversing what had been a few months of modest employment reversals.
The central bank’s latest survey, which was conducted between Feb. 21 and March 15, showed a positive balance of opinion of 43 per cent of firms saying they will add employees over the next year, about the same as in January.
As well, more firms said they will increase their level of investment in machinery and equipment — a good signal for productivity and economic growth — over the next 12 months.
The central bank calls the plus 24 balance of opinion reading on this question “solidly positive.”
Meanwhile, firms are not reporting significantly greater capacity pressures or labour shortages, and believe both input costs and inflation will be moderate.
As well, the executives say credit conditions have eased over the past three months, which should make it easier and less expensive to fund operations and expansion.
A separate survey of senior loan officers also found that both the price and conditions for lending to firms have improved.
The business survey is one of many indicators that are likely to be considered in the Bank of Canada’s new outlook for the economy, which will be published next week.
In a recent interview, governor Mark Carney described economic conditions as “a bit firmer than we had anticipated in January,” and has said that the slack in the economy has tightened.
Although prospects for growth are improving, economic opinion is unanimous that there is virtually no chance Carney will lift his foot off the pedal on stimulative interest rates.
The bank’s trendsetting policy rate has been fixed at one per cent since September 2010, even though Carney continued to express concern such easy lending conditions are luring many Canadians into high levels of borrowing.
Analysts note that the alternative would likely be worse — raising rates would slow down domestic economic activity and boost the Canadian dollar, making Canadian exports less attractive.