Bank of Canada survey shows firms expect sales growth to stabilize

OTTAWA (Reuters) - Canadian firms expect sales growth to stabilize over the next year and say labor pressures and various tariffs mean input and output prices will start to rise more quickly, a Bank of Canada survey said on Friday.

Bank of Canada Governor Stephen Poloz arrives at a news conference in Ottawa, Ontario, Canada, October 24 2018. REUTERS/Chris Wattie

The quarterly report said business sentiment had fallen slightly but was still elevated, signaling that the overall outlook continued to be positive.

Plans to increase investment and employment were widespread, especially in the services sector, the central bank said, noting the indicator of capacity pressures was still elevated.

“Although sales prospects generally remain positive, firms expect sales growth to stabilize,” the bank said. Of the companies surveyed, 36 percent expected sales growth to increase at a greater rate over the coming 12 months, and 37 percent predicted a lesser pace of sales growth.

“Firms expect input and output prices to rise at a somewhat greater pace than over the past 12 months ... Expectations of upward price pressures from tariffs and rising labor costs are partially offset by an anticipated moderation in commodity price growth,” said the survey.

Most firms anticipated positive U.S. growth over the next year and forecast sales would benefit directly or indirectly.

Some noted the effect would be muted from punitive measures Washington has imposed on exports of Canadian aluminum and steel in late May and Canadian counter-tariffs, as well as U.S. tariffs on some Chinese goods.

“Despite some softness, the survey suggests that the economy entered the recent financial volatility in decent shape,” Benjamin Reitzes, Canadian rates & macro strategist at BMO Capital Markets, said in a research note.

Sentiment remained depressed in the energy-rich western Prairies region, which has been hit by lower oil prices.

The indicator of investment spending on machinery has receded slightly but intentions are still solid, supported by sustained demand. Plans for higher spending and increased employment were concentrated in the services sector.

Compared to the autumn survey, fewer firms said labor shortages were more intense than they had been a year earlier. But the percentage of firms reporting they would have some or significant difficulty meeting an unexpected increase in demand stayed elevated, in part due to trouble finding staff.

But companies said they no longer expected capacity pressures to intensify, pointing to increases in investment and employment.

Reporting by David Ljunggren; editing by Jeffrey Benkoe and James Dalgleish