Business Outlook Survey (Q4) - Capital Economics
Canada Economics

Business Outlook Survey (Q4)

Canada Economics Update
Written by Stephen Brown

The sharp rise in the Future Sales Indicator of the Business Outlook Survey (BOS) is surely the final nail in the coffin for the idea that the Bank of Canada might soon cut interest rates. The survey supports our view that GDP growth will rebound in the first quarter and we see the Bank keeping policy unchanged.

  • The sharp rise in the Future Sales Indicator of the Business Outlook Survey (BOS) is surely the final nail in the coffin for the idea that the Bank of Canada might soon cut interest rates. The survey supports our view that GDP growth will rebound in the first quarter and we see the Bank keeping policy unchanged.
  • Admittedly, the survey wasn’t all positive. Firms reported that sales did not grow at all in the past year and the future sales balance fell to 11%, from 23%. (See Chart 1.) But the BOS Future Sales Indicator, which incorporates the future sales balance and other factors including firms’ perceptions of their order books, advance bookings and sales inquiries, jumped to 33%, from 16%. The FTI points to a rebound in GDP growth from our estimate of 1.5% y/y in the fourth quarter to over 2%. (See Chart 2.)
  • Firms’ investment intentions dropped to a three-year low and look consistent with machinery & equipment investment stagnating. The Bank said the drop was because some firms had just finished large projects, rather than because they had cancelled existing plans. The sharp rebound in firms’ hiring intentions is more encouraging and suggests private sector employment growth is unlikely to slow any further. (See Chart 3.)
  • Businesses’ output price expectations softened a bit and support out view that November marked the peak for core inflation, but with firms reporting increased capacity pressures this is unlikely to concern policymakers too much. While the Bank is no longer producing the Senior Loan Officer Survey, firms reported in the BOS that their credit conditions were little changed.
  • The Bank today released its Survey of Consumer Expectations for the first time. The results reinforce the Bank’s concerns that loosening policy would risk raising financial vulnerabilities. Households’ expectations for house price inflation were the highest in over a year and consumers said that they expect to increase spending at a faster rate, despite reduced expectations for income growth. Strikingly, households reported that the probability of losing their job in the next 12 months, as well as the probability of leaving their job voluntarily, were the highest in the survey’s five-year history. (See Chart 4.) That reinforces the fact that, while some sectors of the economy are struggling, others continue to do very well.

Chart 1: Past & Future Sales Balances (%)

Chart 2: BOS Future Sales Indicator & GDP

Chart 3: BOS Hiring Intentions & Private Sector Jobs

Chart 4: Probability of Losing or Leaving Job (%)

Sources: Bank of Canada Business Outlook Survey, Refinitiv


Stephen Brown, Senior Canada Economist, +1 416 874 0514, stephen.brown@capitaleconomics.com