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Business confidence is rising, more investment: Conference Board

Canada's business leaders are much more optimistic about the economy and the fortunes of their own companies than they were just a few months ago, but few are yet willing to back those sentiments with significantly increased investment.


May 4, 2012
by CANADIAN PRESS

OTTAWA: Canada’s business leaders are much more optimistic about the economy and the fortunes of their own companies than they were just a few months ago, but few are yet willing to back those sentiments with significantly increased investment.

A new survey released by The Conference Board found that 43% of respondents expected economic conditions to improve, a big pick-up over its winter survey when only 19% were optimistic.

As well, more than 50% said profits would rise in the next six months, as opposed to 38% in the last quarter.

And although 54% said it was a good time to invest in plant expansion or new machinery and equipment, there were fewer firms than in the last quarter willing to increase expenditures by 20%, the survey found.

Still, Conference Board economist Pedro Antunes said if history proves a guide, rising confidence will eventually lead to greater investment and hiring.

“I think this (confidence reading) is a good indicator for investment, it does tend to lead investment intentions,” he said.

“We saw the strong rebound in confidence in 2010, then we saw investment pick up, so this is telling me that investment intentions will be stronger than what was reported in the fall.”

Businesses were more optimistic, in some cases significantly so, across a range of indicators, including the direction of the economy and whether their own profits and finances would improve in the next six months.

But the respondents cited soft demand, continuing excess capacity, rising labour costs and high taxes as impediments to going all in on plant expansion or new machinery and equipment.

Still, Antunes said the results were encouraging overall and that he expects companies will continue to invest.

The findings are somewhat similar to the Bank of Canada better-known business outlook survey conducted in February and March, which indicated rising sentiment for sales, hiring and investment.

The Conference Board survey was conducted in March and April, before the Statistics Canada report showing the economy had contracted by 0.2% in February, and other recent weak indicators from Europe and the US.

But Antunes said he believes he would receive similar results today despite the recent “hiccups.”

However, given that many large Canadian firms are integrated with the US economy, Antunes said the news south of the border would also be critical going forward.

After a strong start to the year, economic indicators have lately presented a murky picture. The last labour data from Canada showed an outsized growth of 82,000 jobs and the unemployment rate dropping to 7.2% in March, but the US jobs numbers disappointed.

Meanwhile, about half of Europe is officially in recession, a not unexpected finding.
And federal Finance Minister Jim Flaherty noted that the contraction in Canada was for only one month and he was “very cautious about looking at statistics that relate to only one month.”

The Bank of Canada recently upgraded its growth expectations for both Canada and the US, although not all private sector economists have gone along with the new – if mild – optimism.

The Bank of Montreal is sticking to its guns of only 2% expansion this year – 0.4 points below the central bank’s – and predicted Central and Eastern Canada would perform below trend growth. Only the four western provinces would top 2% growth, the bank said, led by Alberta at 3.4%.

“Growth in the central provinces will likely run below 2%,” said BMO deputy chief economist Doug Porter.

“The auto sector is one bright sport. But a rising tax burden will continue to weigh on growth in Quebec, and spending restraint will begin to bite in Ontario as the province grapples with a near-$15 billion deficit.”

© 2012 The Canadian Press