Policy uncertainty emanating from the Trump administration fails to daunt them

Canada’s companies remain largely unscathed from policy uncertainty emanating from the Trump administration, with sentiment remaining at elevated levels.

The Bank of Canada’s first-quarter survey of executives showed expectations for future sales have improved, with companies seeing continued signs of capacity constraints and labour pressures. The central bank also found only a small minority of businesses have been impacted, or expect to be impacted, by changes or uncertainty around U.S. policy.

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“Results of the spring Business Outlook Survey suggest that business sentiment continues to be positive, supported by healthy sales prospects,” according to the Bank of Canada’s quarterly Business Outlook Survey Monday in Ottawa.

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The report should give policy makers at the central bank confidence in their underlying argument the nation’s businesses are running up against constraints and poised to boost investment to meet demand. If it continues, the additional investment is expected to help sustain the expansion, while limiting inflationary expectations as the investment bolsters their capacity to grow without raising prices.

“Data rolling in for 2018 hasn’t painted a very clear picture, but Canadian companies continue to see a healthy underlying economy, at least according to the Bank of Canada’s Business Outlook Survey,” Royce Mendes, economist at CIBC World Markets in Toronto, wrote in a note to investors.

The quarterly survey included the publication of new questions around U.S. policy, finding that 80 per cent of companies reported either favorable or no impacts. Looking forward, about 68 per cent see no clear impact or expect to benefit.

Canada’s currency rose after the survey was released, trading 0.5 per cent higher at C$1.2715 per U.S. dollar at 10:44 a.m. Toronto time.

Key Takeaways

• The overall business outlook indicator — an aggregate gauge of sentiment — was at a still elevated 1.96 in the first quarter, compared with 2.49 in the fourth quarter. The reading is one of the highest in the past 17 years for the gauge, and has been positive for six straight quarters

• The share of firms that expect to see sales volumes growth accelerate was at 43 per cent, the highest in three quarters and up from 39 per cent from the previous quarter. Those who see slower sales growth fell to 27 per cent, from 31 per cent. The balance of opinion — at 16 percentage points — was double the level in the last survey

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• The share of businesses that saw an improvement in their indicators of future sales — such as orders and sales inquiries — was 55 per cent, up from 51 per cent in the last survey

• While investment intentions moderated from the previous survey, the continue to be widespread

• Employment intentions “are solidly positive” “Indicators of capacity pressures and labor shortages edged down but are still close to recent high levels”

• There was a pick-up in inflation expectations, with a majority of executives for the first time since 2012 expecting inflation to be at 2 per cent or above.