Bank of Canada Business Outlook Survey and Senior Loan Officer Survey (Q4): TD Economics

Jan 10, 2011 | Corporate Member News

Business sentiment remains solid in Canada

  • The Bank of Canada’s business outlook survey for the fourth quarter of 2010 indicated that businesses are still optimistic about their future sales prospects.
  • While the share of firms expecting their sales volumes to increase faster in the coming year than in the previous year remained high at 51%, the balance of opinion (% of firms expecting stronger growth less % of firms expecting weaker growth) was 22%, the lowest level recorded so far in this recovery.
  • Canadian businesses continued to expect their spending on new machinery & equipment (M&E) to rise in the coming year, with a balance of 29% expecting to spend more than they did last year.
  • Most positive was that the balance of opinion regarding hiring intentions which rose dramatically by 16 percentage points to 41%.
  • Inflation expectations remained well anchored to the 1-3% range, with 91% of firms holding this expectation.
  • In the Bank of Canada’s Senior Loan Officer Survey, officers reported a substantial easing in credit conditions for non-financial firms in both pricing and non-pricing terms.

Key Implications

  • Today’s report supports our assertion that, while economic growth in Canada has moderated from the rapid pace recorded in the early months of the recovery, it remains well-entrenched and the Canadian economy is well-placed for more balance growth in the coming quarters.
  • We expect a better performance in the net export sector, due mainly to the recent announcement of renewed fiscal efforts to bolster the U.S. economy, will likely act as a less of a drag on overall growth while the primary drivers continue to be consumer spending and business investment. M&E investment, in particular, is where much of the strength will lie in 2011; though it too has moderated after three quarters of substantial gains, it will still be a key source of growth given the elevated Canadian dollar, various fiscal incentives and supportive domestic economy. Investment intentions underlie this assertion, even as the balance of opinion fell to 29% from 36% in the third quarter.
  • Perhaps most surprising was the surge in employment intentions back to levels seen in the first half of 2010. Back then, job gains were averaging in excess of 50,000 on a monthly basis and we had always anticipated that this would moderate alongside the overall economy. This appears in contrast to today’s report which indicated that 49% of firms planned on hiring more employees (up from 39% in the previous quarter), while the share of firms planning to shed jobs fell from 14% to 8%. Though the survey says nothing on the magnitude of the number of expected job gains or losses, these most recent intentions represent an upside risk to the job market in the coming year.
Francis Fong, Economist

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This report is provided by TD Economics for customers of TD Bank Group. It is for information purposes only and may not be appropriate for other purposes.

The report does not provide material information about the business and affairs of TD Bank Group and the members of TD Economics are not spokespersons for TD Bank Group with respect to its business and affairs. The information contained in this report has been drawn from sources believed to be reliable, but is not guaranteed to be accurate or complete. The report contains economic analysis and views, including about future economic and financial markets performance. These are based on certain assumptions and other factors, and are subject to inherent risks and uncertainties. The actual outcome may be materially different. The Toronto-Dominion Bank and its affiliates and related entities that comprise TD Bank Group are not liable for any errors or omissions in the information, analysis or views contained in this report, or for any loss or damage suffered.

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