Canadian firms see little sales growth: BoC survey

The bank said Canadian companies are showing concerns about how the weakness in the U.S. economy and general uncertainty in the global economy will effect them in the next 12 months.

“The balance of opinion on future sales growth has fallen to just above zero,” the report stated, “indicating that firms now expect little change in the pace growth over the next 12 months.

“Businesses still intend to increase investment and employment, but the balance of opinion are lower.”

The only positive was that firms reported greater sales over the past 12 months than in the previous year.

The biggest dropoff in sentiment was on sales expectations, with the balance of opinion — the difference between those expecting an increase in sales volume and those anticipating a decrease — falling to six percentage points, about one-third the level of the summer survey.

It was the lowest result on this question since the fall of 2008, when the recession hit.

“Amid concerns about the level of demand, many firms are forecasting an increase in sales growth over the next 12 months reported that they expect to achieve this by introducing new products or by adopting strategies to increase market share,” the bank added.

On the important hiring question, 52% of firms said they still believed they would be taking on new employees, as opposed to 14% who said they intended cut back. The healthy 38% balance of opinion was still down from the more than 50% reading obtained in the summer.

Similarly, twice as many firms expect to increase their level of investment in machinery and equipment than those who do not, but the 22% balance of opinion was slightly lower than in the summer reading and the lowest in over a year.

In line with expectations of diminished demand, the balance of opinion of firms was that they would be forced to slow the pace of price growth for their products and services. This was especially true in Central and Eastern Canada, the bank said.

In a separate survey, the bank said senior loan officers reported that business lending conditions are continuing to ease, although at a lesser rate than three months ago.

The bank said it surveyed firms between Aug. 22 and September 22, while the poll of loan officers was conducted during the third week of September.

The BoC also released its latest quarterly senior loan officer survey on Monday.

Taken together, RBC Economics says the business outlook survey “implies a moderation in optimism among firms relative to the summer survey”, while the loan officer survey suggests “that credit conditions have eased once again although to a lesser degree relative to the summer”.

BMO Capital Markets says that the business outlook survey, “revealed a significant pullback in business expectations of sales, hiring and capital spending”, however, it notes that, “given that the survey was conduced pretty much in the heart of financial market concerns about European debt and weak U.S. growth, the deterioration in confidence was no surprise.”

RBC says that the most notable deterioration was in the outlook for sales for the next 12 months. “The Business Outlook Survey suggests that although respondents expect growth to continue, the optimism has been curtailed. The increased cautiousness has largely reflected external development where there is increased concern of U.S. growth being sustained and a more uncertain global outlook,” it adds.

“This moderation in confidence provides further reason for the Bank of Canada to maintain its highly accommodative stance of policy to try and offset these external headwinds. We do not expect official rates to rise until the middle of next year,” RBC concludes.

“Business expects less sales growth, less hiring, less investment, less inflation, and less capacity pressure. But, they still expect growth. Nothing for the BoC to do but stay still for now,” BMO adds.

With files from James Langton