Bank of Canada Finds Widespread Positive Business Sentiment

By Paul Vieira Features Dow Jones Newswires

Positive business sentiment in Canada is widespread, with companies ramping up investment and hiring plans to meet sustained demand at home and abroad, the Bank of Canada said Monday.

Continue Reading Below

The results of the central bank's quarterly business-outlook survey likely set the stage for a Bank of Canada interest-rate increase Jan. 17, when it issues its next scheduled rate decision and economic outlook. Those expectations rose late last week after a blockbuster employment report for December, which showed the unemployment rate fell to a four-decade low of 5.7% and the economy added nearly 79,000 jobs in the month.

The fourth-quarter survey, conducted Nov. 14 to Dec. 8, said the share of firms reporting they would encounter "some" or "significant" difficulty meeting an unanticipated rise in demand rose to its highest level since the financial crisis and recession of 2008-09. Any remaining spare economic capacity is contained to the energy sector, which remains in recovery mode after a steep fall in commodity prices in late 2014, the Bank of Canada said.

An indicator measuring capital-spending plans rose to near a postcrisis high, with nearly half of companies surveyed expecting to fork out more money on machinery and equipment over the next 12 months. Hiring intentions also rose, and firms said labor shortages are "more intense" than a year ago in sectors such as technology, tourism and construction.

The Bank of Canada gives considerable weight to the survey results when crafting rate decisions, because they capture intentions and managers' attitudes that don't necessarily show up in lagging macroeconomic data.

"Overall, there's enough in here on the plus side to cement the case for a rate hike later this month," said Avery Shenfeld, chief economist at CIBC World Markets.

Continue Reading Below

The latest survey follows a more moderate overall picture in the prior quarter in which firms' views on employment, sales growth and capital spending pulled back slightly. Also, the survey period comes after talks toward revamping the North American Free Trade Agreement hit a stalemate over U.S. demands on the automobile sector and the pact's dispute-resolution process. Talks resume later this month in Montreal.

Prior the survey's release, some economists said any widespread concern over Nafta could prompt the Bank of Canada to hold off on a rate increase, even with strong employment and inflation data for December.

"While respondents are increasingly concerned about the renegotiation of Nafta and rising protectionism more generally, most see healthy U.S. growth and the low Canadian dollar benefiting their sales over the next 12 months," the Bank of Canada said in a summary of survey findings.

On balance, the survey said, firms expect export growth to accelerate, in part due to an improved U.S. economic outlook after lawmakers in Congress passed a tax-overhaul package that delivers rate cuts to American businesses.

As for the sales outlook, 39% expect sales to grow at a faster pace than the previous 12 months. That is down slightly from 42% in the previous survey.

Write to Paul Vieira at paul.vieira@wsj.com

(END) Dow Jones Newswires

January 08, 2018 11:48 ET (16:48 GMT)