Canadian Businesses Pare Sales Growth Expectations Amid Oil Woes

(Bloomberg) -- Canadian businesses are paring back expectations for sales growth in the face of turmoil in the country’s oil sector and seeing still-elevated capacity constraints stabilize, according to a survey by the central bank.

The Ottawa-based central bank’s fourth-quarter survey of executives -- which took place in November as oil prices tumbled -- shows a mixed picture, with businesses expecting a slowdown in sales after a period of strong growth over the past year, but still intent on investing and hiring workers.

Still, the increase in capacity constraints that had been evident in previous surveys seems to have come to an end, and combined with the subdued sales outlook, lessens the case for any rush for rate increases. The Bank of Canada cited oil producing regions and housing for the weakness.

“Overall, firms no longer anticipate capacity pressures to intensify, pointing to increases in investment and employment that expand productivity capacity, and expectations that demand in the Prairies and around housing in some regions will moderate,” the report said.

Bank of Canada Governor Stephen Poloz puts a large weight on the survey, which he considers an important supplement to harder economic data. The survey provides insights into everything from investment intentions to the amount of slack in the economy and inflation expectations.

The Bank of Canada’s composite gauge of sentiment -- what it calls the Business Outlook Survey underlying indicator -- recorded a 2.19 reading. While down from levels recorded in the past two quarters, it’s still well above historical averages.

One indicator for future sales recorded its worst reading since 2011. The number of companies expecting slower future sales growth now exceeds those expecting an acceleration. A separate indicator of future sales that includes orders also fell in November to the lowest pace since 2016.

Investment intentions were also down but still elevated, with 46 percent of firms anticipating higher spending on machinery and equipment. Employment intentions actually picked up from the previous survey.

Firms are also still reporting elevated capacity constraints, though that indicator is unchanged from the previous survey. Hiring intentions actually increased though intensity of labor shortages fell from extremely high levels.

--With assistance from Erik Hertzberg.

To contact the reporter on this story: Theophilos Argitis in Ottawa at targitis@bloomberg.net

To contact the editors responsible for this story: Theophilos Argitis at targitis@bloomberg.net, Chris Fournier

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