TORONTO — The data from the first quarter Bank of Canada survey remains consistent with earlier indicators, such as GDP growth, that Canada is on track to outpace U.S. growth for a third consecutive quarter pointing to a firming in the Canadian economic backdrop, RBC Economics reported.
Expectations for future sales growth moderated, but held above long-run average levels and hiring intentions improved for a third consecutive quarter, which is consistent with strong labor market improvement to-date in 2017, said Nathan Janzen, senior economist.
“Perhaps most encouragingly, business investment intentions surged to their highest level since third quarter 2010, and matched the second-highest reading on record, despite reports of significant uncertainty around the outlook tied to potential trade disruptions and changes to U.S. taxation that could hurt Canadian competitiveness,” said Janzen.
The business investment intentions in the survey are in sharp contrast to a pull-back in private business investment intentions in a closely-watched annual CAPEX intentions survey from Statistics Canada. The indicator of labor market shortages did tick lower, but overall capacity pressures tightened slightly, Janzen explained.
Bank of Canada Governor Poloz remained adamant last week that, notwithstanding a run of good economic data, the economy continues to run well-below its long-run production capacity, he added.
“Today’s report will not necessarily change the bank’s view ahead of next week’s policy decision; however, the longer the run of stronger economic data persists, the harder that position will be to defend,” said Janzen.
The future sales measure inched lower but remained above its long-run average the long-run average. The ‘indicators of future sales’ measure rose to a 5-year high.
Hiring intentions rose for a third consecutive quarter and business machinery and equipment investment intentions jumped to their highest level since third quarter 2010 and matched the second-highest level on record, Janzen explained.
Capacity pressures tightened modestly although indicators of labor shortages eased.
A total of 94 percent of respondents expected inflation in the 1 percent to 3 percent Bank of Canada target range. That is up from 89 percent in fourth quarter 2016 and with the increase reflecting more respondents expecting growth in the top 2 percent to 3 percent half of the range.
Credit conditions eased modestly both from the borrower’s perspective and the lender’s perspective, according to the concurrently released Senior Loan Officer Survey.
SOURCE: RBC Economics press release