Business Expectations Index

Today we launch our new Business Expectations Index (BEI), which captures the near-term outlook according to Canadian businesses.

Key Findings

The BEI shows businesses are stuck in a cautious near-term holding pattern. Sentiment remains weak in the first quarter of 2024 (at 99.1), but has improved from last quarter (93.9).

(For this diffusion index, 100 is the threshold that separates improving from deteriorating sentiment. This answers the question: “Are business conditions over the next three months expected to improve (>100), stay about the same (~100), or worsen (<100)”?)

With economic growth slowing, firms report rising concerns about insufficient consumer demand. Affordability challenges and high interest rates are weighing on consumers and businesses, but the impacts vary significantly across the country.

Ontario (96.8) and BC (98.0) are dragging down the national numbers, while sentiment is stronger in Atlantic Canada (102.6) and Quebec (102.5). Locally, the outlook is weakest in major Southwestern Ontario cities (London, Toronto, Hamilton) and Vancouver.

Our findings highlight the interconnected nature of household and business challenges. In the locations where Canadian families are feeling the financial squeeze the most (which has them pulling back on discretionary spending), businesses are more pessimistic about the outlook.

Additional Findings from our latest Canadian Survey on Business Conditions Report:

• Cost-related challenges dominate the top business obstacles with over half of all businesses getting squeezed by high interest rates.
• Facing continued cost pressures, firms’ pricing behaviour still hasn’t fully normalized. Despite headline inflation recently falling back into the Bank of Canada’s inflation target range, the share of companies expecting to raise prices next quarter remains historically elevated, at 25%.
• Businesses expect modest employment growth in the next three months, as labour market conditions continue to come into better balance between supply and demand. That said, labour market challenges remain acute in accommodation and food services, construction and healthcare. Recruiting challenges are still a major issue in the tech sector.
• Micro firms (one to four employees) continue to struggle with debt constraints, while firms with 100+ employees are much more optimistic.
• There's an even split between the number of sectors with improving and deteriorating outlooks. Improvement is led by finance and a rebounding manufacturing sector. Deteriorating sectors include those more sensitive to the pullback in consumer spending and high interest rates, such as transportation, accommodation and food services, and real estate.
• Among underrepresented groups, Indigenous-owned businesses are the most optimistic and represent a clear bright spot, while businesses owned by immigrants are much more pessimistic.

About the Business Expectations Index:

• The BEI is a timely, forward-looking measure of business sentiment that allows economists, market watchers and policymakers to gain insights into where the economy is headed. For their part, businesses across a wide variety of contexts can quickly learn what their peers are thinking, and update their business strategies accordingly.
• Unlike other sentiment indicators, our index drills down beyond national trends to provide reliable and relevant results by geography, industry, firm size, business ownership, international trade status and more.

Big thanks to Andrew DiCapua , Kaviraj Singh , the BDL team and Statistics Canada | Statistique Canada for conducting the CSBC.

Check out more findings in our Expectations Index backgrounder , read the full Q1 2024 CSBC Report, and try out our interactive Survey Insights Generator Dashboard!