- Overall sentiment improved for a third straight quarter
- Reports of growing capacity pressures outside the Prairies
- Future sales indicators improve; less concern about trade tensions
Today’s Business Outlook Survey showed a modest improvement in sentiment in the late stages of 2019, suggesting a recent run of soft data overstated the economy’s slowdown in H2/19. Indicators of future sales strengthened and hiring intentions picked up, though the capex outlook softened after some large projects were completed. Concerns about trade tensions were less prevalent (even though the survey period closed slightly before a US-China phase-one deal was reached, Brexit was sorted out, and odds of USMCA ratification rose) though concerns about US protectionism remained. Perhaps most significantly for the BoC, the economy appears to be operating close to full employment outside the Prairies with firms continuing to report capacity pressures and labour shortages. Even in the Prairies, where sales growth slowed further, there were reports that the energy sector may have bottomed out toward the end of last year.
There were three key reports or events early this year that we thought would shape the narrative ahead of the BoC’s January 22 meeting—Governor Poloz’s speech last week, the December jobs numbers, and today’s Business Outlook Survey. None of those made the case for an immediate rate cut, and market odds of a move next Wednesday are essentially nil. An improvement in business sentiment in Q4 and indications the economy remains close to full capacity give the BoC reason to discount some of the soft economic data we saw in late-2019. So while the BoC looks set to mark down its Q4/19 GDP growth forecast in January, its tone likely won’t be as pessimistic.
