For me, this is a more-important report than today’s jobs data.
Business Outlook Survey indicator remains negative, signaling widespread softness” demand is weak, firms have excess capacity, and price growth continues to slow” but little deterioration since last quarterFirms reported weak past sales growth due to past inflation and interest
rate increases continuing to weigh on the economy, particularly on
consumers’ budgetsSales expectations remain softer than average but have improved slightly this quarter on rate cut hopes. Sales growth indicator to +13 from +1Labour shortages continue to ease, with few firms reporting challengesInvestment and hiring intentions remain weakInvestment spending +9 vs +11 priorWage growth expected to moderate graduallyFirms anticipate slower growth in input and selling pricesInflation expectations within BoC’s target range at all horizons
The Bank of Canada’s Q3 2024 Business Outlook Survey shows that Canadian firms are still facing headwinds, with the BOS indicator remaining in negative territory. While current business conditions remain subdued, there’s a glimmer of hope as future sales expectations showed some improvement.
Labour market pressures continue to ease, with the share of firms reporting labour shortages falling well below historical averages. This cooling in the job market is reflected in weak hiring intentions for the coming year.
On the inflation front, businesses expect wage growth to moderate gradually. They also anticipate slower growth in both input costs and selling prices compared to recent quarters. Importantly, inflation expectations have settled within the BoC’s 2-3% target range across all time horizons, with most firms expecting inflation between 2% and 3% over the next two years.
Given that CPI is already at 2%, there is no reason for Bank of Canada rates to be so high above neutral. The question for this month’s meeting is 25 bps or 50 bps and I see an overwhelming case for 50 bps. That said, the BOC has been slow to move and the slight uptick in future sales expectations could give the central bank pause before making any dramatic moves.
USD/CAD is up 21 pips to 1.3764 on the day and about 10 pips on this release.
Separately, the survey of consumers also showed deteriorating inflation expectations but that was coupled with improved sentiment around financial stress but worsening sentiment around the jobs market.
Financial stress indicators show improvement44% of consumers noticed interest rate cuts (up from 17% in Q2)Nearly half still expect a recession in the coming yearWage growth expectations soften for first time since Q2 2023Job-hopping likelihood decreasesYouth report more pronounced labor market deteriorationHome buying intentions unchanged at average levelsOnly 8% of non-buyers would consider purchasing if rates were lower
This article was written by Adam Button at www.forexlive.com.
