Insights & Analysis

November 23, 2022

While still positive, business optimism has softened: Results from the November 2022 Business Expectations Survey

Highlights
Even in the face of global uncertainty, the Business Council of Alberta’s most recent Business Expectations Survey shows continued optimism for Alberta’s economic outlook. This survey, conducted in mid-November, shows that businesses’ economic conditions are generally holding strong, though have moderated slightly from recent highs:
  • 67% of respondents reported an uptick in forward-looking indicators (down 11% from June) while 60% expect sales to further accelerate over the next 12 months (down 5% from June).
  • 62% of respondents plan to increase employment over the next year while, for the first time in 12 months, some respondents (12%) report that they expect to decrease staffing over the next year.
  • 42% plan to increase investment in machinery and equipment (down 15% from June), while 23% plan to scale back (up 10% from June).

Hiring constraints are softening as a challenge, but skills shortages persist as more than half of companies are struggling to find qualified workers. Financing constraints are increasingly weighing on businesses as more than half of respondents reported difficulty accessing credit.

In November, the Business Council of Alberta conducted its latest Alberta Business Expectations Survey (BES)—a tool to assess recent trends in business conditions and economic expectations in the province. This survey captures the perspectives of BCA’s strongest asset—our member CEOs—whose expectations play an important role in setting the direction of the provincial economy.

In our last three surveys conducted over the previous year (in November 2021, February 2022, and June 2022), respondents showed strong optimism in their outlook with respect to sales, hiring, and investment. This optimism reflected the strong economic recovery following the COVID-19 pandemic, despite challenges such as continuing waves of infection and subsequent restrictions, supply chain disruptions, labour shortages, and Russia’s invasion of Ukraine.  

Since then, Russia’s invasion of Ukraine has continued to put pressure on the supply of key commodities, adding to inflationary pressures and straining global markets. The Bank of Canada continues to increase interest rates in an effort to bring down inflation, adding to the challenges faced by consumers and businesses alike.

Early signs of slowing present in our June survey materialized in our November survey. While business sentiment remains positive overall, it has certainly softened. Businesses expect moderated growth as sales volumes level off in the coming year. This is not unexpected as sales growth returns to a healthy—albeit slower—pace of growth following the sharp economic recovery. Labour shortages have materially improved as businesses plan to hire less over the next year. Rising interest rates and the possibility of weaker demand mean that investment intentions have also softened.

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Survey Results
Broadly speaking, the BES asks questions in three general categories of business activity: past sales and future expectations; employment and access to labour; and investment plans and credit access. We highlight some of the key findings below.

Where applicable, we use a “balance of expectations” approach to analyzing the data. Effectively, what this means is that we focus on the gap between businesses who think a certain indicator will improve and those who think the opposite. For example, we ask in the survey what businesses expect their employment level to be in the next 12 months: higher, lower, or about the same as it is now. The balance of expectations is the percentage of firms reporting that employment will be higher minus the percentage reporting that it will be lower. The more positive the balance, the more overall optimism we see about future hiring. The more negative the balance, the more pessimism we see.

Sales expectations moderate slightly but remain positive overall

Most respondents continue to report an improvement in forward-looking indicators—things like new orders, advance bookings, and sales inquiries that signal anticipated future economic activity. Likewise, businesses remain optimistic about their future sales (when compared with the last year). However, those numbers are down somewhat compared to our June survey, while a greater number of businesses report a levelling off. This levelling off was anticipated as more and more businesses see a full economic recovery from the COVID-19 pandemic. While responses have moderated from the last survey, around the same percentage of businesses indicate a deterioration in forward-looking indicators or expected sales volume, while a greater share of businesses report a levelling off.

Key Findings
  • The majority of businesses (67%) continue to report an uptick in recent, forward-looking indicators, though this represents a decline from June (78%).
  • 60% of respondents expect sales volumes over the next year to accelerate—a slight moderation from our last survey (65%)—only 9% expect sales to decelerate (compared to 13% in June)
  • As a result, the balance of expectations for future sales activity remains positive at 52%. That figure is two percentage points lower than the previous survey in June. 

Labour shortages are still a concern but finally show signs of easing

A majority of businesses plan to add to their workforce in the coming year. At the same time, and for the first time since November 2021, some businesses report plans to decrease overall staffing levels.

Perhaps the most notable result from this survey is the sharp decrease in the number of businesses reporting worse labour shortages compared to a year ago. And almost one-quarter of respondents indicate that labour shortages have actually eased compared to a year ago. That said, the majority of businesses still report that the inability to find qualified workers is impacting their ability to meet customer demand. While this number has moderated since our last survey, finding skilled workers continues to be a challenge for business.

The provincial government’s Alberta is Calling campaign, in concert with the federal government’s increased immigration targets, should help close the talent and skills gap in the coming months and years.

Key Findings
  • 62% of respondents expect to increase employment over the next year, in line with results from the June survey (61%). In a departure from the June survey, where no respondents planned to decrease staffing, 12% are now expecting to reduce staffing over the next 12 months.  
  • 39% of respondents reported labour shortages are more of an issue compared to a year ago, a 30% decrease from the February survey.
  • 60% of respondents reported difficulty filling the positions needed to meet demand, an improvement over the last three surveys, where values ranged between 73 and 78%.

Investment plans are down, and financing becomes increasingly difficult

Plans to increase investment spending took a relatively large hit, with less than half of businesses planning to increase spending and a growing number of businesses—nearly one-quarter of respondents—planning to dial back investment.

Credit access is proving to be a significant challenge for businesses. For the first time since the inception of our survey in late 2020, more than half of respondents reported more difficulty accessing financing. This is unsurprising given the Bank of Canada’s continued rapid rate-hiking campaign combined with volatility in equity markets.

Key Findings
  • 42% of respondents expect to spend more on machinery and equipment—down 15% from our previous survey—over the next year, while 23% expect to spend less.
  • As such, the balance of expectations for investment spending remains positive—at 19%—but represents a decline of 24% from June.
  • Access to financing continues to be an issue for businesses. 60% of respondents reported that terms and conditions for obtaining financing have tightened over the last three months, while only 4% say it has improved.
  • This leaves the balance of expectations increasingly negative: -56% compared with -30% as of June.

Summary of Results

As a whole, our November 2022 BES survey results are encouraging news for Alberta and Albertans. While the outlook has moderated slightly, what we are seeing is largely a levelling off rather than a deterioration as economic activity shifts from recovery to a more normal state of affairs. That said, it is important to keep our eyes on indicators such as sales outlook, employment, and investment to ensure that the situation does not worsen. One challenge that does warrant more immediate concern is credit access. Difficulty accessing credit could weigh on future investment and present a serious roadblock to businesses looking to expand. While the global context continues to usher in more uncertainty, Alberta businesses remain relatively well-positioned to weather any storms that come.

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