Canadian businesses still bullish despite U.S. worries, rising rates: BoC

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Businesses in Canada remain bullish about the future, shaking off concerns about U.S. protectionism, rising interest rates and the stronger Canadian dollar, according to the Bank of Canada's fall business outlook survey.

The overall mood has cooled a bit from the summer, but the results still "point to continued positive business sentiment across the country, with business activity becoming entrenched," according to the report released on Monday.

The bank characterized business sentiment as "healthy."

Read also: BoC's Poloz says Canada's growth to slow down in second half of 2017

Companies are generally upbeat about future sales, investment and hiring, according to the survey of senior managers from 100 businesses across the country, conducted from Aug. 24 to Sept. 19.

For some companies, finding enough good people is becoming a significant challenge. The intensity of labour shortages is now at its highest level since the 2008-09 recession, as companies report growing problems finding qualified workers, particularly in tourism, construction and technology.

"Capacity and labour market pressures have intensified over the past year, suggesting that slack is being absorbed amid robust demand," the bank said.

Typical of the challenge is fast-growing technology company SOTI Inc. of Mississauga, which manages mobile communications for governments and businesses in 22 countries. The company is adding workers at roughly 30 per cent a year to keep up with its growing sales, but struggles to find enough qualified software developers, architects and quality-control personnel.

"I've been in human resources for 15 years and this is definitely the most intense it's been," said Michelle Brooks, SOTI's vice-president of global human resources. "The universities are doing a good job of bringing out great tech talent, but the demand is too intense … It's like going to war every day."

It's a similar story at Toronto-based BlueCat Networks Inc., whose server technology connects users and devices securely to Internet-based applications. Like SOTI, it's having trouble finding good tech workers, including coders, product managers and salespeople.

"Even 12 months ago, it seemed easier to find the qualified talent," said Cheryl Kerrigan, vice-president of people at BlueCat. "Toronto has become a hot bed for technology startups. I've been in this business for 20 years and it's become extraordinarily difficult, in a short amount of time, to find the people we're looking for."

The business outlook survey is one of the last pieces of information Bank of Canada Governor Stephen Poloz and his central bank colleagues take in before their next scheduled interest-rate-setting announcement scheduled for Oct. 25. The bank has raised its key interest rate twice so far this year – a total of half a percentage point to 1 per cent – and financial markets are expecting one more hike between now and January.

The results suggest that while the central bank is still in monetary tightening mode, it will likely to take a "cautious" approach to further rate hikes, Bank of Montreal economist Benjamin Reitzes said in a research note.

"The more subdued tone of the survey highlights that there's no rush for another hike from the Bank of Canada," Mr. Reitzes said.

Toronto-Dominion Bank economist Brian DePratto pointed out that a collapse of the North American free-trade agreement could force the central bank to back off another rate hike, which TD expects in December.

"Such a scenario would clearly, at a minimum, push the Bank of Canada back into a holding pattern," Mr. DePratto said.

Companies remain optimistic about future export sales, even to the United States, according to the survey. But Royal Bank of Canada economist Paul Ferley pointed out that the survey was conducted before recent reports suggesting the NAFTA talks are not going well. "The uncertainty may have intensified … with growing risks that NAFTA renegotiation may fail," Mr. Ferley said.

Among the highlights of the survey:

• 63 per cent of respondents said orders and other future sales prospects have improved.
• 42 per cent said their pace of sales growth will pick up over the next year.
• Businesses in the energy-producing provinces reported higher sales activity for the first time since the 2015 oil price collapse.
• 41 per cent of companies expect to spend more on machinery and equipment over the next 12 months.
• 48 per cent of respondents expect to add workers over the next year.
• 47 per cent of companies say they will have difficulty meeting demand in the next 12 months.