The story behind Canadian business confidence

Canadian business confidence dropped this month, but there’s still potential for more interest rate hikes from Canada’s central bank.

The October business barometer, published by the Canadian Federation of Independent Business (CFIB), dropped to 60.5 in October—about one point below September and August levels. Still, an index above 50 means more owners expect their businesses to perform better in the next year compared to those who expect weaker performance.

Despite the monthly drop, the index remains above year-ago levels, notes a TD report, and is in line with recent trends.

Also, while the index remains below pre-oil-shock averages—evidenced by subdued performance in resource-heavy provinces like Alberta and Newfoundland—the TD report highlights both an uptick in natural resources confidence and last year’s pickup in global oil prices as cause for optimism.

Yet, “currently depressed Canadian heavy oil prices and elevated differentials may cap any strong spikes in confidence within some of these provinces,” that report says.

Overall, the barometer shows broad-based sector improvement, though results indicate “holdover effects” from moving averages of previous months’ results, says the business barometer.

Labour worries

A record-high of 47% of businesses say they’re experiencing a shortage of skilled labour, which indicates capacity constraints, the business barometer finds—TD calls the finding “a key theme.”

Capacity constraints dent firms’ hiring plans and production increases, says the report, adding that the results of the Bank of Canada’s latest Business Outlook Survey also indicated a tightening labour market.

Wages are cited as a major cost constraint for 61% of respondents to the business barometer.

“Assuming economic data continue to support the Bank of Canada’s positive outlook, this narrative should add credence to expectations of further rate hikes by the data-driven Bank of Canada,” says the TD report.

For full details, read the CFIB Business Barometer and the TD report.

About the business barometer: October’s data are based on 655 responses to a controlled-access web survey from a stratified random sample of CFIB members. Data reflect responses received through Oct. 15. 

Staff

The staff of Advisor.ca have been covering news for financial advisors since 1998.