July 4, 2023

Weekly EconMinute—Alberta businesses’ economic outlook

In this week’s EconMinute, we’re talking about Alberta businesses’ economic outlook.

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As you may know, the BCA surveys its members three times a year to get a pulse on the health and expectations of Alberta businesses. Recently, we compiled the June results.

Generally, we look at responses to individual questions to assess the landscape. However, it’s also useful to know, overall, what the survey tells us: are businesses generally feeling good about the year ahead? To answer this, we created a single measure—or indicator—which we’ll call the Business Outlook Index.  

Of course, there are a variety of ways we could measure this, ranging from simple to complex. The Bank of Canada, for instance, produces a national indicator, taking a more complex approach.

To get a quick gauge, we instead choose a simpler approach (see details below). This index can range from a maximum of 100% (i.e., all businesses report a perfectly positive outlook) to -100% (representing the exact opposite). On balance, any number above zero represents a positive outlook.

So are businesses feeling good about the year ahead?

  • The Business Outlook Index remains firmly positive at 24%.
  • In spite of another interest rate hike and concerns of a national or global recession, the Index has actually improved since February: from 16% to a 24%.
  • The increase in the Index since February is driven by two factors: future sales and production inputs. Sales expectations have generally grown and, with that, more businesses plan to increase both employment and investment.
  • The overall Index has been more positive only one time since its inception: April of 2021. However, a positive outlook today is more telling of the underlying strength of the Alberta economy than it was back then.

This last point is important. Spring of 2021 was a time of weaker sales and higher unemployment–a time when we were worried about the impact of COVID on the economy.

What’s remarkable now is that—even with a tight labour market and strong revenues—businesses expect to see further growth. To be sure, strong population growth is a major underlying factor, but this remains a very good sign for Alberta.

Business Outlook—Indicator Methodology
To generate a single indicator, we simply weight the “balance of expectations” of each of the 9 survey questions equally and calculate the sum total of the results. An indicator that is positive generally means the business outlook is good. A number that is negative means that the outlook is poor—either because sales expectations are weak or because business face constraints (e.g., high cost of financing, labour shortages).

The balance of expectations is 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.

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