• The BoC’s ‘composite’ BOS indicator was negative for the first time since Q3 2016
  • Measures of capacity pressures eased significantly – giving the Bank of Canada even more reason to stay on the sidelines in terms of further interest rate hikes for now.
  • Employment and investment intentions edged lower but are still at reasonably solid levels

Business confidence softened in the first quarter – and somewhat more than was expected according to the Bank of Canada’s Spring (Q1) Business Outlook Survey. Expected future sales growth over the next 12 months ticked up but were still unimpressive. And that was after a soft prior 12-month period with the balance of opinion on past sales growth swinging to a small decline in the quarter. Hiring and investment plans both remained relatively upbeat but down from earlier quarters. Perhaps more importantly for the Bank of Canada, measures of capacity pressures eased lower. The share of firms reporting they would have at least some difficulty meeting an unexpected increase in demand fell to its lowest level since Q3 2015 (at 31%). The share of businesses reporting labour shortages fell in lock-step – and the intensity of those labour shortages also reportedly eased. The Bank of Canada has already made a quick move to the sidelines in terms of further interest rate hikes in recent months with global growth concerns, benign inflation trends, and slower household credit/spending growth offsetting persistent capacity pressures. The easing in indications of the latter only reinforces that move and increases the odds that the next Bank of Canada interest rate hike is a lot further away than thought just a few months ago.

The bag was somewhat mixed on global growth concerns, but negative on balance. U.S. – Canada tariffs imposed last year continue to impact businesses on both sides of the border and “some” businesses reported that global tensions are a source of uncertainty or are hurting sales. Yet “many” businesses still see foreign demand as supportive with “a few” reportedly noted some positive impact from US policy changes and diversion of trade to Canada resulting from U.S.-China frictions. We continue to think that actual trade disruptions are probably not large enough to be having a really big macroeconomic effect – but the BOS numbers do reinforce that there could be some benefits to business confidence if/when those tensions ease.


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