The central bank’s third quarter Business Outlook Survey released Monday showed that most businesses in Canada intend to keep hiring through the next 12 months, while a “growing minority” plan to maintain current staffing levels.
Business leaders responding to the survey, conducted between Aug. 15 and Sept. 9, cited difficulty finding skilled workers as the biggest impediment to their hiring plans.
The latest jobs figures from Statistics Canada showed the country’s labour force remained tight in September with the unemployment rate ticking down slightly to 5.2 per cent.
Overall business sentiment has softened in Canada, the central bank’s survey showed, with many firms expecting slower sales growth amid rising interest rates and cooling demand.
A majority of businesses surveyed now think a recession is likely in the next 12 months.
'Jobful recession' in the cards: economist
Stephen Brown, senior Canada economist at Capital Economics, told Global News on Monday that while the proportion of businesses looking to scale down their payrolls also grew in the latest survey, it’s a “bit of an anomaly” to see hiring demand grow as revenue forecasts drop.
The Bank of Canada will need to see demand for labour drop before its job balancing the economy is done, Brown said, suggesting interest rates will need to keep rising.
But businesses’ expectations for wage growth did drop off “fairly noticeably” in the survey, which he said could be a benefit to Canadian workers.
“It does support the idea that we could have almost a jobful recession where economic activity contracts, but employment actually holds up fairly well,” Brown said.
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These observations align with recent forecasts from Royal Bank of Canada and Deloitte, which have called for a recession with fewer job losses than previous downturns.
Deloitte Canada’s chief economist, Craig Alexander, told Global News recently that with labour markets so tight, businesses would be more reticent to let go of workers in a recession in fear that they wouldn’t find replacement staff on the other side of the downturn.
Despite forecasts of slower growth, business sentiment remains positive. Firms linked to housing activity expect higher rates to hurt their sales, while others now anticipate a slower — though still healthy — pace of sales growth, the survey found.
“While many firms anticipate a recession, those not linked to housing activity and other household consumption do not expect it to have a large impact on demand for their products and services,” the report said.
The majority of consumers also expect a recession in the next 12 months.
Bank of Canada's interest rate implications
While there are early signs that pressures on prices and wages are easing, business inflation expectations remain high, the survey showed. Consumers, meanwhile, expect faster rising prices in the near term, though longer-term expectations have eased, a separate survey found.
Brown said it’s “disheartening” to see Canadians continue to believe inflation will be higher in the short term, especially given the recent drop off in gas prices.
While the Bank of Canada should be glad that consumers believe inflation will return to target in the longer term, Brown said it’s the short-term expectations that will determine how much Canadians will demand for wages. By raising interest rates, the central bank seeks to dampen these expectations and avoid higher wages being passed on to prices — fueling inflation in a worrying cycle.
The Bank of Canada has hiked its policy rate by 300-basis points since March, with money markets betting on another 50-basis-point increase to 3.75 per cent at its next decision on Oct. 26.
Monday’s pair of surveys raises the odds of 75-basis-point increase next week, Brown said, though that’s not Capital Economics’ forecast at this moment. He’s still waiting to see the latest annual inflation figures from Statistics Canada on Wednesday before adjusting that call.
The uptick in consumers’ one- and two-year inflation expectations means the Bank of Canada will have to keep its “foot on the accelerator,” wrote TD Bank economist Ksenia Bushmeneva in a note to clients on Monday. TD’s call remains for a half-percentage-point increase.
“There’s urgency to tame inflation as it is putting strain on consumers, and is unmooring shorter-term inflation expectations,” Bushmeneva wrote.
CIBC economists Andrew Grantham and Karyne Charbonneau wrote in a note Monday that the easing growth expectations in the business survey should be enough of a signal for the central bank to stick to a 50-basis-point increase. The pair cautioned, however, that a “big upside surprise” in inflation could push the bank to go higher.
— With files from Global News’ Eric Sorensen, Reuters