Q2 2018 – TEC Canada CEO Confidence Index – Background

The TEC Canada CEO Confidence Index survey was sent to CEO and small business members.

  • It was conducted from April 3rd to April 17th, and had 221 responses.
  • Responses came from small to medium sized firms, who have employees primarily between 50 and 500 and with revenues from $1 million to $500 million.
  • Surveys such as this are a guide to current business conditions as well as the business outlook

Confidence index highlights

Almost half of respondents expect to increase their total fixed investment expenditures during the next 12 months.
A resounding percentage of respondents expect their firm’s sales revenues will increase during the next 12 months.
A high percentage of respondents indicate that they have not experienced an improvement in pricing power.
69% indicate that NAFTA uncertainty is not having an adverse effect on any of their expansion plans.

Background

While Canada’s economy had a good year in 2017, with a 3% growth rate for GDP leading the G-7, business decision-makers face a number of challenges looking ahead. Last year’s growth surge has tightened the job market, pushing the unemployment rate to its lowest level in more than 40 years.

Cost and price pressures are therefore emerging. However, productivity gains are weak and Statistics Canada has reported mediocre business investment intentions. There is also widespread media coverage of Canada’s international competitiveness problems and the risk of a changed trade relationship with the United States.

Current conditions

The respondents to the Q2 2018 TEC Canada CEO Confidence Index diverge somewhat from the official statistics on Canada’s strong 2017 growth performance. A high percentage of them (43%) report that they believe that economic conditions have remained the same compared to a year ago. Even more surprising, more see a worsening (29%) than an improvement (27%).

Business outlook

Most economic forecasters expect that Canada’s economy will shift to slower growth in 2018. The consensus view among forecasters is for growth marginally in excess of its rate of productive capacity.

This view is not fully supported by the TEC Canada survey respondents. They are cautions and do not expect a significant improvement in overall economic conditions. Only 16% of the respondents expect them to be better, while 29% expect them to be worse. The majority (52%) expect them to be the same.

There is more confidence on an individual basis though. This might reflect expectations of increased market share or new products or new markets. A remarkable 71% of the respondents expect their firm’s sales revenues will increase during the next 12 months. Only 8% expect a decline.

The outlook for profitability is not as robust, but the majority (50%) still anticipate an improvement in their firm’s profitability during the next 12 months. In comparison, 31% expect profitability to remain the same and 18% expect a decline.

Investment plans

Statistics Canada has previously reported lackluster business investment intentions. Alberta shows a large decline, while Ontario shows flat intentions. This is one area where the TEC Canada CEO Confidence Index respondents are more upbeat than current general opinion.

Almost half (48%) of the respondents expect to increase their total fixed investment expenditures during the next 12 months. Only 15% plan to reduce them.

This positive indication for investment spending plans could partly reflect a benign attitude towards current NAFTA negotiations. A relatively large percentage (69%) indicated that NAFTA uncertainty is not having an adverse effect on any of their expansion plans.

Prices

Canadian consumer price inflation is now up to a 3-year high. However, the balance of opinion among the TEC survey respondents on their product or service prices is tilted towards them remaining the same over the next 12 months.

The share of respondents expecting them to remain the same (49%) outweighed the share expecting price increases (44%) by a narrow margin. Only 5% expect their prices to decline.

There is an indication that labour costs could become more of an issue in the future. A relatively high percentage of respondents (44%), report that they are now experiencing labour shortages.

Increased cost pressures may not find their way through to product or services prices though. A high percentage of respondents (87%) indicate that they have not experienced an improvement in pricing power.

Employment

Employment growth in Canada has been strong enough to push the national unemployment rate to 5.8%, which is the lowest in more than 40 years. Full-time employment shows a robust increase from a year ago, while part-time employment has declined.

The TEC survey shows that hiring plans remain strong. The percentage expecting to increase their firm’s total number of employees stands at 53%.These increases are expected to be most noticeable in the second and third quarters of this year. Only 9% plan to reduce employment.