- The Bank of Canada found a slight improvement in business sentiment in the fall edition of its Business Outlook Survey (BOS). The summary ‘BOS indicator’ rose to 0.4 from a revised level of -0.1 in the summer survey – although sizeable regional differences are reported, with the Prairies in negative territory.
- The sales outlook was generally positive. A net 23% of respondents see sales growth accelerating over the next 12 months, unchanged from the prior survey. The ‘indicator of future sales’, which includes order books, sales inquiries, and related information, pulled back a bit, to 16% from 23%, but remained in positive territory.
- Hiring intentions continued to moderate (net balance: 31%, down from 36%). The Bank reports that a regional split underpins the headline: Central Canada and B.C. are seeing robust hiring intentions, with softness in energy producing regions holding back the headline figure. Overall, labour shortage indicators suggest that job markets have continued to tighten.
- Investment intentions moved higher, with a net 28% of respondents indicating plans to increase their spending (was: 20%). The regional split was evident here as well, with businesses in the Prairies more downbeat in their spending plans. The Bank of Canada also reported “modest” intentions among exporters.
- Capacity pressures are mounting. On balance, half of firms surveyed indicated that they would have ‘some’ or ‘significant’ difficulty meeting an unexpected increase in demand, a marked rise over the past few quarters. This is not yet feeding through to prices however. Firms, on balance, expect modestly falling input prices and a modest acceleration of output prices, and nearly two-thirds of firms expect inflation to sit in the 1% to 2% range over the next two years.
Senior Loan Officer Survey
- The Bank of Canada’s parallel Senior Loan Officer Survey (SLOS) reported easing mortgage lending conditions, but tighter non-mortgage conditions. Easing came from the price side of things as lower funding costs were passed along to borrowers. Demand rose, and is expected to grow further in the wake of government programs (First-Time Home Buyer Incentive). Tighter non-mortgage conditions reflected a tightening in auto lending across the country, but also a change in regulations specific to Quebec.
- Business lending conditions were more or less unchanged as non-price conditions tightened slightly and price conditions were unchanged. As has been the theme for a whole, conditions remain tighter in the energy sector and Prairies. Demand for credit was unchanged.
Key Implications
- Another decent if unexciting report. Regional differences remain stark, but overall, the firms surveyed by the Bank of Canada remain reasonably positive about economic conditions. Today’s report doesn’t scream a surge in growth, but neither does it portend a downturn. So, you can unclip your seatbelt: if today’s report is to be believed, we’re likely in store for a solidly middle-of-the-road economic performance.
- With interest rates moving lower since the start of the year, it was just a matter of time before credit demand followed suit. Indeed, led by mortgages, household credit growth has picked up meaningfully in Q3. Both home sales and prices have been on an upswing for the last several months, and further gains are expected on the back of low mortgage rates, solid labor market and a modest boost from the First-Time Homebuyers Incentive. And, still more support for housing demand is likely in store given yesterday’s election results (see commentary). Still, given the high level of indebtedness, Canadians likely have little appetite to further increase their leverage. This should keep credit growth roughly in line with disposable income.
- Ultimately, with the themes in today’s report reflecting the broader economic themes this year, there is little reason for the Bank of Canada to change strategy. Until and unless the domestic data begins to meaningfully turn negative, the Bank will be comfortable to remain on the sidelines even as its advanced economy peers continue to ease their monetary policies. We will get a sense of how the thresholds for action have or have not changed with the Bank’s rate decision and updated forecasts next Wednesday, October 30th.
