Canadian firms look to better sales, more hiring, but optimism still muted
OTTAWA — After suffering through a rough 2012, Canadian firms seem hopeful of a modest turnaround this year that will allow them to hire more workers and increase investments, a new Bank of Canada quarterly survey suggests.
However, the central bank’s latest business outlook survey also notes the uncertain economy continues to weigh on Canadian firms and that, while businesses expect 2013 to be better, their optimism is far from exuberant.
Firms are reporting fewer capacity restraints in meeting unexpected production demans and fewer labour shortages than they did three months ago.
“Responses to the winter survey provide further indications that firms have faced a period of softness in economic conditions,” the central bank said Monday in summarizing the opinions of Canadian business executives.
“While some forward-looking indicators of business activity have moved up from the levels recorded in the autumn survey, many firms cited concerns about demand over the next 12 months, as well as pressures related to increased competition.”
Nevertheless, CIBC economist Peter Buchanan said the results are better than what might have been expected, given that the survey of senior management at 100 firms representative of the Canadian economy was conducted in late November and early December.
That was at a time when the economy was known to have slowed to 0.6 per cent growth in the third quarter, and still faced a possible crisis over a tax-and-spend political dispute in United States.
“Overall, it’s somewhat better than expected. It does suggest Canadian sentiment did not take the hit some people might have feared over the United States fiscal cliff negotiations,” Buchanan said.
He added that the level of optimism, however, was not as strong as what was seen coming out of the recession a few years back.
The results are in line with expectations the bank will revise downward its 2.3 per cent growth forecast for this year at the next opportunity, next week, and stick with low interest rates a while longer. In a recent speech, senior deputy governor Tiff Macklem conceded the economy had not been as strong as expected.
Monday’s report finds firms reporting that the pace of growth of sales last year tipped into negative territory for the first time since early 2010, with 35 per cent saying volumes increased at a slower pace in 2012 than the previous year, as opposed to 33 per cent who said the pace picked up.
Yet looking ahead, more firms than not said sales are expected to grow at a faster pace over the next 12 months. Forty-four per cent said they expected a pick-up this year, as opposed to 28 per cent who felt sales growth would slow, a stronger reading than three months ago.
As well, more firms — 42 per cent of respondents — said they expect to add employees in the next year, compared with 14 per cent who thought it would be lower. That was marginally better, on balance, than in the previous survey.
There was also a big jump in the outlook for investment in new machinery and equipment to boost productivity. The survey found 43 per cent of respondents expected spending in this area to increase (while 23 per cent expected it to fall), compared with a 37-29 split in the previous report.
Still, the bank says the survey results don’t constitute a high level of optimism among Canadian business executives, and that on some questions, firms continue to report weak and even deteriorating conditions.
Even on expectations of improved sales expectations, the bank said firms attribute the optimism to “pursuing new business opportunities or by adopting strategies to maintain market share,” rather than to increased demand.
“Overall, uncertainty continued to temper expectations for business activity,” the bank said.
A separate survey of senior loan officers found virtually no change in business lending conditions, although firms themselves reported a modest easing of credit conditions during the past three months.