Canadian firms expect sales prospects to improve over the next year, and are accelerating hiring plans to help meet strong domestic demand, the Bank of Canada said Friday.
The results of the central bank's quarterly business-outlook survey, conducted between early May and early June, offer insight into the bank's sudden bullish turn on the outlook. Coupled with data earlier Friday suggesting Canadian economic output expanded for a sixth straight month in April, the survey's findings are likely to bolster expectations for a rate increase July 12.
"The two reports are unambiguously supporting an imminent rate hike," said Sebastien Lavoie, chief economist at Laurentian Bank Securities in Montreal.
Responses to the survey "suggest business activity is continuing to gain momentum," the central bank said, "buoyed by indications that domestic demand will improve further. Positive business prospects are increasingly widespread across regions and sectors."
For instance, the survey of managers at roughly 100 firms indicated half of respondents expect sales growth to rise at a faster pace compared with the previous 12-month period. Furthermore, hiring intentions hit a record level, the bank said, with two-thirds of firms signaling their levels of employment would be higher in a year from now, whereas 8% suggested they would be lower.
The central bank said investment intentions among companies remain elevated, and continue to point to an increase in capital spending over the next 12 months.
"The focus of firms' investments has shifted toward expanding capacity to accommodate growing sales, with many businesses referring to improving domestic demand as the main driver of their investment decisions," it said.
Survey respondents also said improving demand was pushing their operations closer to capacity, and labor-related constraints have become more prevalent, "suggesting that labor markets are tightening."
Bank of Canada senior officials were presented with the survey's findings roughly a week ago, according to central bank decision-making protocol. Days later, Bank of Canada Gov. Stephen Poloz said in a broadcast interview that excess slack in the Canadian economy is now being absorbed "steadily" at the current pace of growth, and this would have to be taken into account when crafting its policy-rate decision on July 12.
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.
Earlier Friday, Statistics Canada reported economic output in April rose 0.2%, following a 0.5% advance in March. Analysts say that puts Canada on track for roughly 2.5% annualized growth in the April-to-June period. In the first quarter, gross domestic product advanced 3.7%, or top among the Group of Seven leading nations. Employment in Canada rose in May on a one-year basis at its fastest pace in more than four years.
"Few economies in the world can hold a torch to Canada's over the past four quarters," said Derek Holt, economist at Bank of Nova Scotia, following the release of April GDP data. "Quite frankly, the growth Canada is posting has had more in common with emerging-market norms than developed economy growth rates across the U.S., U.K., the eurozone and Japan."
Mr. Holt this week altered his rate outlook, and said he expects the Bank of Canada to gradually raise its benchmark rate to 1.25% by the first quarter next year.
Write to Paul Vieira at firstname.lastname@example.org
(END) Dow Jones Newswires
June 30, 2017 13:08 ET (17:08 GMT)