World News

Bank of Canada fourth-quarter survey says business sentiment ‘broadly positive,’ labor market tightening

By Kelsey Johnson

OTTAWA (Reuters) – Canada’s labor market is expected to tighten over the next year outside of the energy-dependent Prairie provinces, a Bank of Canada survey said on Monday, with some businesses now planning to add staff to meet supply and production demands.

Results of the central bank’s quarterly business survey revealed business sentiment is “broadly positive” while expectations for future sales growth “remain positive.”

The survey found business concerns around trade tensions had declined somewhat, with foreign demand, particularly from the United States, still lifting export prospects.

The fourth-quarter business survey was released less than two weeks before the Bank of Canada’s next interest rate decision, scheduled for Jan 22.

The Canadian dollar strengthened to 1.3038 to the U.S. dollar, or 76.70 cents U.S., after the business outlook survey.

Canada’s central bank has held its benchmark rate steady since October 2018, even as several of its international counterparts have eased. Money markets see little chance of a rate cut next week.

“The overall Business Outlook Survey Indicator ticked higher, but there were still pockets of weakness,” said CIBC senior economist Royce Mendes in a note, adding the indicator is “more of a contemporaneous gauge and doesn’t provide much guidance of where the economy is headed over the next four quarters.”

Of the companies surveyed, 39% said labor shortages were more intense while 14% said labor shortages were less intense. In the previous survey the balance was 34% to 12%.

Firms reported shortages of specialized labor, like skilled trades and engineering, as well as in lower-skilled jobs. Hiring plans, the Bank’s survey found, “are widespread across most sectors” with those plans primarily concentrated among firms in Quebec and British Columbia, where the labor shortages are most acute.

Monday’s survey also found firms see “some signs that energy sector activity may have bottomed-out as production limits are gradually removed and some progress is made on pipeline capacity.”

Of the companies surveyed, 43% expected sales to grow at a faster rate than in the past 12 months, while 32% predicted a lesser rate of sales growth. In the previous survey, the balance was 48% to 25%.

Meanwhile, expectations for U.S. economic growth have recovered slightly, the survey noted, adding fewer firms anticipate a U.S. recession.

Respondents also said they anticipate pressures on capacity, which edged up for the third-consecutive quarter, will increase further over the next year, thanks in part to rising demand and labor challenges.

(Reporting by Kelsey Johnson; Additional reporting by Fergal Smith in Toronto, editing by Dale Smith and Steve Orlofsky)