Canadian businesses are girding for inflation and supply chain-related challenges in the months ahead, according to the results of Statistics Canada’s latest survey on business conditions.
The survey, carried out between October and early November, found that businesses were anticipating a variety of obstacles over the next three months, including rising input costs, supply disruptions, labour shortages and consumer demand uncertainty.
More than half of firms were expecting these challenges to last for at least six months, StatsCan noted.
In a research note on the data, RBC Economics said that the survey results highlighted the supply chain issues facing companies.
“Those challenges were most acute in the industrial sector, but reports of labour shortages were broadly based, including in high-contact service-sectors where there is still a large jobs shortfall versus pre-pandemic levels,” the bank said.
“Most businesses expect challenges sourcing inputs to last at least six months — but even as those shipping bottlenecks ease, and input cost growth slows, labour shortages are likely to remain given ongoing longer-run demographic headwinds to labour force participation,” RBC added.
The StatsCan survey found almost half of companies (48.3%) said that they expected to increase their employees’ wages, and 25.1% expected to raise wages for new employees as part of their efforts to recruit and retain skilled employees — with 35.4% of firms foreseeing recruitment issues, and 32.7% anticipating labour shortages.
Increasingly, businesses are planning to raise their own prices too, with 25.9% now expecting to hike prices over the next three months, up from 21.7% in the previous quarter.
RBC noted that the number of firms planning to raise prices is up from the previous survey. Plus, “more than 40% are seeing higher input costs, implying profit margins are still getting squeezed,” the bank said.
Despite these expected challenges, more than half (52.9%) of businesses expected their profitability to remain unchanged over the next three months, and 10.4% expected profits to increase — 33.6% saw profits falling.
StatsCan noted that there are wide variations in profit expectations, by sector.
For instance, almost two thirds of professional services and finance and insurance businesses expect profits to hold up in the months ahead, whereas 57.6% in the accommodation and food services sector see profits falling.
Additionally, the survey noted that some businesses may have trouble repaying pandemic-related government relief.
Overall, 15.1% of businesses said they foresee “major challenges” in repaying government support funding over the next 12 months, including 38.7% of companies in accommodation and food services, and 25.2% in arts, entertainment and recreation.
Those same sectors also indicated that the absence of government supports would have a “medium-to-high” impact on their survival prospects over the next 12 months.
And, while most businesses indicated that they have enough liquidity to finance operations over the coming months, 19.4% said that they could not take on any more debt.
StatsCan said the top reasons for this include a lack of confidence in future sales and cash flow issues.
More than a quarter of businesses (28.8%) expected sales to be lower in the fourth quarter this year, compared with the last pre-pandemic fourth quarter in 2019. Of these firms, 26.3% expected that it will take more than 12 months for sales return to their pre-pandemic levels, and 15.8% said that it’s unlikely that sales will ever return to those levels.