Prudent Press


Bank of Canada surveys find optimism despite weak faith of Canadians


According to  the Bank of Canada Business Outlook study  (BOS) that was just recently completed, employers were found to remain cautious about the economy for 2012, although the majority of those surveyed had expectations to boost hiring.

The study is conducted once every 3 months and includes 100 companies. The study is a questionnaire that covers topics such as business activity, pressures on production capacity, prices and inflation, and credit conditions. The responses to qualitative questions (such as whether sales volume will increase at a greater, lesser, or the same rate over the next 12 mnths as over the past 12mnths), along with the explanations that follow them, allow senior economics staff at the bank’s regional offices to provide a macro level assessment of the economy.

The survey found, that 54% of firms across Canada had plans to boost hiring, 37% reported they expect their employment levels to remain unchanged, whereas only 9% had plans to cut personnel.

While this may seem like good news, it’s also important to bear in mind that economist with TD Bank Leslie Preston stated,

although it’s positive that more than half of employers noted they had intentions to hire this year, it’s dampened by the fact that it’s not widespread across the country

Preston stated that many of the firms that planned to engage in hiring personnel were more concentrated in the Prairie provinces.

And the study also showed little change in inflation expectations among business, while firms said they

no longer report a net easing in credit conditions

The Bank of Canada also released out another study – the Senior Loan Officer Study  (SLOS)

The survey collects information from selected financial institutions on changes to both the price and non-price terms of business lending over the current quarter. The survey also includes supplementary questions to collect the views of financial institutions on how changing economic or financial conditions are affecting business lending.

-The Senior Loan Officer Survey complements information on lending conditions from the borrower’s perspective that is collected in the bank’s business outlook survey (BOS).  Analyzing trends in business lending conditions has numerous challenges:

1) Data on business-borrowing activity show the outcome, not the underlying causes, of credit developments. So for example, an increase in the growth of business credit could result from increased demand for credit, increased willingness of lenders to lend, or a mix of the two.

2) while some pricing information for business loans is publicly available, the coverage of non pricing aspects of business lending (such as lending terms) is limited in the currently published Canadian data.

-Respondents are asked a set of standard questions covering their lending practices for 3 types of business borrowers: corporate, commercial, and small business. Financial institutions are asked to assess the qualitative change in pricing
and non-pricing lending practices over the current quarter (compared with the previous quarter) and, if there was a change, to indicate their reason for tightening or easing.
-The standard questions have remained largely unchanged in each quarterly survey with one or two ‘topical’ questions focusing on how changes to specific economic or financial factors are affecting business lending.

11 financial institutions are currently surveyed and at each institution, the senior officers responsible for corporate, commercial, and small business lending typically complete the survey. The survey is currently  conducted over a two-week period just the end of the calendar quarter.

To recap, based on the forecast from both studies:

  •  Companies expected to hire new workers at a speedier rate compared to back in October.
  •  According to the Business Outlook Survey, Quarter 4 conditions on credit were no longer easing
  •  92% of respondents saw inflation remaining within the Bank of Canada target range of 1-3%
  •  The loan officer survey demonstrated little change after eight quarters of generally easing conditions.

Both surveys suggest that credit conditions are no longer easing. The diffusion measure (difference between those seeing tighter vs easier conditions) in the BOS turned positive with a reading of 5 compared to -13 last quarter.

- Yet if you ask Canadians their thoughts on the outlook for the economy – the majority polled still believe Canada is amidst a recession. A poll carried out by Pollara Strategic Insights for the Economic Club of Canada, found that out of those Canadians surveyed, 70% believed the country was in a recession. Much of this may definitely be attributable to the escalation in fears over a US default during the debt ceiling debacle back in August, and the constant European debt crisis that has plagued Greece, Ireland, Portugal, Spain, and Italy.

The poll is conducted annually every December, between 2000-3000 Canadians, and in years past has demonstrated that 65% of Canadians felt the country was in recession at the end of 2010, and 78% felt the same at the end of 2009. These pessimistic concerns have left some economists puzzled. Chief economist with BMO Capital Markets Douglas Porter said, “I think there is a bit of a disconnect between that survey and the economy.”

And these worries don’t seem to match up to recent Statistics Canada reports that show 18,000 additional jobs were added in the months of December.

All this leads to an important question: Do Canadians know something that economists and bank officials do not?





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