Business sentiment
- The Bank of Canada’s Business Outlook Survey (BOS) was conducted between August 6 and September 2, 2026. Roughly three-quarters of the interviews took place before trade talks between Canada and the U.S. collapsed.
- The overall BOS indicator edged higher in Q3 but remained modestly negative at -0.33 (from -0.39 in Q2), well above the lows seen during the peak of U.S. tariff uncertainty in the first half of 2025. The share of firms expecting a recession declined to 6% from 17% in the previous quarter, marking lowest reading since the question was introduced in 2023.
- Firms’ sales expectations strengthened, as did their exports outlook, although the BoC stressed that most interviews were conducted before the breakdown in trade talks.
- Investment intentions edged lower but remained above their historical average. Firms continue to prioritize productivity-enhancing investments including equipment upgrades and AI integration. However, the renewed trade tensions remain an impediment to investment plans.
- Hiring intentions weakened further, remaining below their historical average for a second quarter.
- Wage growth expectations stabilized, with firms expecting average increases of around 3.4% over the next year – slightly above the historical average.
- Input and output price growth expectations eased in Q3, while remaining elevated relative to history. More respondents than last quarter said that they planned to pass on to customers some or all of their cost increases related to the war in the Middle East and tariffs.
- The monthly Business Leaders’ Pulse (BLP) survey found that one-year inflation expectations rose in September amid renewed trade tensions and higher oil prices. Two-year inflation expectations remain elevated while five-year inflation expectations were little changed from the previous quarter. Overall, the results suggest firms continue to view the recent inflation shock as largely temporary.
Consumer sentiment
- The Bank of Canada’s Canadian Survey of Consumer Expectations (CSCE) was conducted between August 5 and August 27, 2026. As with the BOS, roughly three-quarters of responses were collected before Canada-U.S. negotiations broke down on August 18.
- The overall CSCE indicator rose slightly in Q3, while remaining below its pre-pandemic average. About half of consumers continued to expect the Canadian economy to fall into a recession over the next 12 months.
- Consumer confidence was supported by an improved perception of consumers’ financial health, with the corresponding index rising by 17 points in Q3.
- However, spending intentions fell by 13 points, particularly among households expecting higher inflation.
- The labour market index improved modestly as consumer concerns about job loss eased.
- Consumers’ long-term inflation expectations rose from 3.4% to 3.9%, with tariffs and trade tensions continuing to be cited as the main factors affecting inflation. Meanwhile, one- and two-year expectations edged lower.
Key Implications
- Overall, both business and consumer sentiment rose in Q3, although they remained subdued. As with the previous two surveys, the timing of the data collection complicates the interpretation of the results, with responses collected after the collapse of Canada-U.S. trade negotiations pointing to a modestly more negative outlook. Nevertheless, we view overall sentiment as supportive of growth on balance.
- The divergence between consumers’ and businesses’ inflation expectations is puzzling: consumers anticipate stronger and more persistent long-term pressures, while businesses continue to view the recent inflation shock as temporary. The focus will remain on the month-to-month inflation prints, as the share of firms intending to raise prices remains elevated. On that note, today’s inflation report suggests that those intended price hikes are still slowly manifesting, giving the Bank little justification for raising rates at next week’s policy meeting.
