- The BOS indicator popped into positive territory in Q2
- Future sales expectations improved
- Capacity pressures increased though still down from 2018
The Q2 Business Outlook Survey showed a modest improvement in business sentiment, which was about the best we could have hoped for given rising trade tensions during the survey period. Firms expect global trade headwinds and uncertainty will restrain their exports, though they still see foreign sales picking up modestly. More businesses think capacity pressures (which partially rebounded in Q2) and domestic regulations are holding back their sales than trade policy. Domestic demand is expected to remain supportive, with some help from improving housing activity (a key headwind cited in Q1). Weakness in the energy industry is expected to persist, though this morning’s GDP figures show the drag from that sector is easing.
Our worry was that growing external headwinds would more than offset some easing in domestic pressures. That doesn’t appear to be the case, with overall sentiment sitting slightly above its long-term average in Q2. Investment and hiring intentions were little changed from Q1—down from last year, but holding slightly above longer-run averages. So while the BoC is likely to express concern about rising trade tensions, today’s Business Outlook Survey and GDP report give Governing Council plenty of reason to be less dovish than the Fed.
