November 29, 2023

While still positive, business optimism has softened: Results from the November 2023 Business Expectations Survey

Overall, the province’s economic outlook remains positive but has moderated. Compared with our June survey, more businesses are seeing sales slow and many are growing more cautious, particularly when it comes to investment. Some notable findings from our recent survey include:

  • 41% of businesses report improvements in forward-looking indicators, down from 59% as of June. As such, the balance of expectations dropped but remains positive: from 48% in June to 19% in November.
  • 44% of respondents plan to increase their staffing over the next year, down from 60% in June. Meanwhile, those who continue to hire report it is easier to fill open positions.
  • 28% plan to increase spending on machinery and equipment while 30% plan to spend less. This represents a substantial decline in the balance of expectations for investment as financing has become more difficult: from 33% in June to -2% in November.

Looking forward, the challenge of labour shortages is likely to continue to subside, as employment levels normalize and the labour market cools. On a more concerning note, the cost of financing is likely to remain an obstacle for building the major projects needed for future growth. Though this is to be expected as the Bank of Canada keeps interest rates high to fight inflation, it is likely to weigh on the province’s future growth.

About the Survey
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.

Recent sales moderate but outlook remains positive

  • Businesses are beginning to see a slowdown in consumer demand. Based on recent, forward-looking indicators (new orders, sale inquiries, etc.) fewer businesses are reporting an increase and more are reporting a decline, leaving the balance at 19% in November (down from 48% in June).
  • However, businesses remain optimistic: 60% expect an acceleration in sales over the next year (versus 67% as of June). 
  • As a result, the balance of expectations for future sales has moderated but remains firmly positive: 50% in November versus 63% in June.

The search for workers is cooling off

  • There has been a notable shift in hiring. Though 44% of respondents plan to increase staffing over the next 12 months, 18% expect to see a decline. This leaves the balance of expectations at 26%, a sharp decline versus 54% in June.
  • As such, for those continuing to hire, it is easier to fill positions: for the first time in over two years, the majority (63%) of respondents reported no difficulty in filling positions needed to meet consumer demand.
  • Likewise, 39% of respondents noted labour shortages are less severe compared to a year ago, while only 7% report that they are worse.

Investment plans are normalizing as financing becomes more costly

  • Investment plans are shifting. Fewer respondents (28% versus 52% in June) expect to increase spending on machinery and equipment over the next year, while more plan to reduce their spending (30% versus 19% in June).
  • As a result, the balance of expectations for investment spending fell sharply from 33% in June to -2% in November.
  • Part of the challenge is financing: 46% of businesses report that terms and conditions for obtaining financing have tightened over the last three months.
  • Meanwhile, business capacity is less of an issue: fewer businesses report difficulty in meeting demand—with the balance shifting from -3% in June to 43% in November.

Summary of Results

Altogether, the BES survey results are encouraging for Alberta businesses and Albertans, particularly in terms of the positive sales outlook. However, compared to our June results, there has been a clear shift in terms of investment and hiring expectations, as high interest rates weigh on consumer demand and businesses’ ability to invest in the future.

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