Business Outlook Survey—Winter 2020–21

Results of the Winter 2020–21 Survey | Vol. 17.4 | January 11, 2021

In the winter Business Outlook Survey, firms pointed to a continued recovery supported by strengthening domestic and foreign demand, particularly in goods-producing sectors. Still, firms expect the recovery to be uneven; in particular, businesses that have been hit hard by the pandemic anticipate challenging times ahead.

Overview

• Interviews for the Business Outlook Survey were conducted from mid-November to early December. This was before some provincial governments further tightened restrictions to contain the pandemic and after announcements were made about effective vaccines.
• The Business Outlook Survey indicator continued to recover from the near-record low levels of the summer and autumn surveys and turned slightly positive, signalling improved business sentiment.
• Although about half of firms reported that their current sales are below pre-pandemic levels, most firms expect sales to increase in the next 12 months as the economy recovers. Still, one-third of businesses, mostly those that provide high-contact services, do not anticipate sales to return to pre‑pandemic levels in the next year.
• In light of strengthening demand, most firms reported stronger investment and hiring plans.
• Survey results point to increased positive pressures on input costs, largely related to rising freight costs. Because of improved demand conditions, more firms plan to pass these higher costs through to their output prices.
• Overall, consumer price inflation is expected to remain somewhat below 2 percent over the next two years.

Chart 1: BOS indicator

Last observation:

More exporters than in the autumn survey were positive about their sales outlook, but most are recovering from low levels of activity. They expect foreign demand—particularly from the United States—to be supportive. The majority of these firms are manufacturers (e.g., automobile, residential and commercial construction products), while some are commodities exporters (e.g., energy) and a few are in the services sector (e.g., transportation and logistics, technology and software).

Investment and hiring plans

The balance of opinion on investment in machinery and equipment moved up and now sits well above zero, with firms across all regions pointing to positive spending plans (Chart 4). This improvement reflects optimism among firms that were not negatively affected by the pandemic as well as recovering businesses’ expectations of a return to normal conditions. Citing emerging strength in sales, many firms reported plans to expand operations and boost productivity by investing in automation and digitalization. They also plan to improve the customer-facing component of their online business. While the overall outlook for investment has improved, the impact of the pandemic on spending plans remains uneven (Box 1). Several firms in high-contact services, including tourism and live entertainment, plan to hold back investment and spend less than they did over the past 12 months.

Firms reported an easing in credit terms and conditions over the past three months. In the winter survey, businesses were also asked a special question about when they expect the prime rate on their domestic loans to increase. Over half of those who responded expect no rate increase for at least two years (Chart 5). These firms cited uncertainty and economic weakness as key factors holding back prime rate changes in the near term. In contrast, businesses that expect prime rates to rise sooner anticipate an earlier economic recovery supported by the rollout of vaccines, stronger business confidence, or both.

Firms’ employment outlook has improved from the previous two surveys (Chart 6). Businesses often link their hiring intentions with their expected recovery in sales over the next 12 months. Among firms with positive hiring plans, about half expect to ramp up the size of their workforce later in 2021, when they believe the pandemic will be largely under control. As in the autumn survey, half of firms reported that government support programs helped them to reduce layoffs or bring back staff. Still, results point to the uneven and lengthy recovery of labour markets, as one-quarter of firms expect the size of their workforce to remain below pre-pandemic levels for at least another year.

Pressures on firms’ capacity were also driven by difficulties in finding labour, which is reflected in more businesses reporting labour shortages (Chart 8, blue bars). Several firms noted that pandemic-related government income‑support programs were contributing to the difficulty in finding workers. Moreover, as demand strengthened, firms’ need for labour also increased, revealing pockets of labour market tightness that existed before the pandemic—namely in the trades, for technology workers and in remote regions. Consequently, the indicator on labour shortage intensity moved up to just below zero (Chart 8, red line).

Chart 9: Wage expectations

* Percentage of firms expecting higher labour cost increases minus the percentage expecting lower labour cost increases Last observation:

The Business Outlook Survey summarizes interviews conducted by the Bank’s regional offices with the senior management of about 100 firms selected in accordance with the composition of the gross domestic product of Canada’s business sector. This survey was conducted by phone and video conference from November 16 to December 4, 2020. The balance of opinion can vary between +100 and -100. Percentages may not add to 100 because of rounding. Additional information on the survey and its content is available on the Bank of Canada’s website. The survey results summarize opinions expressed by the respondents and do not necessarily reflect the views of the Bank of Canada.