January 5, 2021

The worst may be behind us: Results from the second Alberta Business Expectations Survey

In December, the Business Council of Alberta conducted its second Alberta Business Expectations Survey (BES)—a new quarterly tool to assess forward-looking trends in business conditions and economic expectations in the province. This survey captures the perspective of BCA’s strongest asset—our member businesses whose expectations play an important role in setting the direction of the provincial economy.

The results from our first survey, which was conducted in September, painted a troubling, albeit expected, picture of a long, slow, and painful recovery. We stated at the time that things might get worse before they get better.

Since the last survey, a lot has changed. Some changes have been bad: Alberta has seen a second wave of the virus and, as a result, renewed restrictions started in November, with more expansive restrictions announced December 8. But others have been promising: two vaccines have been approved for use in Canada, an immunization program through Alberta Health Services has launched, and the federal government’s wage subsidy program—a key support for Alberta businesses—was expanded and extended through June of this year.

On balance, however, businesses expectations have held steady. To be sure, things are still bad and our initial conclusion that we are in for a long and slow recovery still holds, but there are signs of optimism, too. And, maybe, the worst is behind us.

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.

Most businesses think the worst is behind them

Businesses have been hit hard by COVID and this continues to be reflected in the survey. The vast majority of businesses in our survey reported a slowdown in sales activity over the last year: 68% in the most recent survey compared with 65% in September’s survey.

However, new business activity coming in is encouraging. In the latest survey, respondents were less likely to report declines in new orders, advance bookings, sales inquiries, and other indicators of future business activity versus a year ago. As of September, 63% had reported a decline in new business activity whereas in our latest survey that number is down to 46%. Meanwhile, 25% of businesses reported an increase in these recent indicators versus last year (a small increase versus the 21% in September). This latter statistic underscores the unequal impact by business and industry, as some businesses are seeing increased sales in spite of, or even because of, the pandemic.

Another good sign is businesses are revising their future sales outlook, with the vast majority expecting that things will not get worse. Only a small minority of businesses (7%) expect to see a further decline in sales, an improvement over the 14% as of September. And 43% expect sales to increase (a small increase over the 39% as of September). The remaining 50% expect sales to hold steady. Net, this means a strong positive balance of expectations of 36% for future sales activity, with more businesses expecting sales to increase than the number expecting sales to decrease.  

Employment outlook improves but still bleak for 2021

The improved outlook in business activity among respondents is reflected in improved employment expectations. The number of businesses expecting to employ fewer workers in the coming year has decreased: 32% compared with 45% as of September. In addition to the stabilizing outlook, there could be other forces at place: the extension of CEWS making it more financially feasible to maintain workers; or businesses with plans to decrease employment as of September have already made necessary cuts.

Unfortunately, an improvement over really bad is still bad. The balance of expectations remains negative, meaning more respondents expect to employ fewer people a year from now (32%) than those that plan to hire more (25%). Compared with September, respondents were more likely to report that their employment levels would remain unchanged but were no more likely to report that they expected to add more staff. In other words, even with the improved outlook for next year and a vaccine in tow, employment could continue to persist below normal levels through 2021. With Alberta’s most recent unemployment sitting around 11.1%, the second highest of all the provinces, this is a major concern.

The silver lining behind high unemployment and weak hiring expectations is that those businesses that are adding workers are not reporting difficulty filling those positions. Only 11% of respondents in our December survey reported that labour shortages were restricting their ability to meet demand, down from 21% as of September. The opposite seems to be the much bigger concern for Alberta: too few job openings for the number of Albertans looking for work.

Investment is the biggest silver lining, while liquidity is a looming concern

With cautious optimism that the worst may be behind us, businesses are more likely to report that they will be increasing their investment activity: 36% now expect to spend more on machinery and equipment in the coming year, compared with just 20% in September. This is crucial as business investment is an important leading indicator of economic growth. The balance of expectations remains negative but improved: the difference between businesses expecting to increase spending and those expecting to decrease spending increased from -20% in September to -4% in December.

Despite government programs to support financial market liquidity, more businesses are reporting that they are having a difficult time raising capital. Thirty-nine percent of respondents said that credit market conditions have tightened versus 32% in September. On the whole, the balance of payments has grown bleaker: -20% versus -14%. This suggests that borrowing costs could be higher for individual businesses, or it is becoming more difficult for businesses in the current climate to access new lines of credit or sell bonds.

Business Expectations Survey Jan 2020, Business Council of Alberta

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