Business Confidence Sees a Slight Uptick in July
Courtesy of Canadian Economics
By: Jake Lenarduzzi, July 30, 2024
- The Conference Board of Canada’s Index of Business Confidence rose by 2.1 points in July to 75.4 (2014 = 100). This marks the second increase in the last three quarters, following a period of over two years without an increase.
- The primary factors driving the ascension were a 1.1-percentage point increase in respondents who believe now is a good time for business investment, and a 4.9-percentage point decrease in those who expect their firms’ financial positions to worsen in the coming months.
- Despite the Index’s rise, respondents largely maintained their views on Canada’s overall economic conditions compared to April’s survey, indicating that major changes to investment are unlikely to occur in the near term.
- Respondents did remain optimistic about prices, with over 75 per cent expecting Canadian prices to grow at an annual rate of 3 per cent or less over the next six months.
- Ontario maintained its position as the preferred region for planned investment, once again identified by over 40 per cent of respondents. The Prairies and British Columbia also attracted significant interest, each identified by over 20 per cent of respondents.
- Artificial intelligence (AI) tools are influencing 31.9 per cent of firms—the highest percentage recorded to date. Respondents emphasized how AI is being employed in business intelligence to enhance corporate functionality.
- Returns on investment were virtually unchanged compared to six months ago, with over 60 per cent of firms indicating their rates of return on capital were as expected.
- In turn, approximately 49 per cent of firms are expecting an increase in their capital expenditures over the next six months, while 18 per cent are expecting a decrease, and 33 per cent are expecting no significant changes.
- This survey’s results align with our Canadian 5-Year Outlook, which forecasts a modest increase in business investment in the second half of 2024.
Key Insights
The Index of Business Confidence has seen a modest increase in two of the last three quarters. In July, the Index rose by 2.1 points, following a 3.6-point decrease in April and a 6.2-point increase in January. Despite experiencing two recent increases, a more substantial uptick has yet to occur, clouding the overall trajectory for business investment. High interest rates, government policies, rising labour costs, and high taxes are the primary challenges currently hindering planned investment, with each factor identified by over 40 per cent of respondents.
High interest rates remain the top concern for Canadian businesses, but its share continues to fall. Currently, 48.5 per cent of respondents believe that high interest rates are having a detrimental impact on their firms’ planned investment expenditures. Although still the highest among other factors, this share was under 50 per cent for a second consecutive quarter. After a 25-basis point rate cut in June, the Bank of Canada opted to lower its key interest rate by another 25 basis points to 4.5 per cent in July. The majority of survey respondents are anticipating that their firms’ borrowing rates will remain unchanged over the next six months.
In the first quarter of 2024, Canada’s total industrial capacity utilization rate stood at 78.5 per cent. This metric reflects how intensively industries are using their production capacity. The latest rate, at 78.5 per cent, marks the lowest level since the fourth quarter of 2020. Our survey results are in line with this number, revealing that about 63 per cent of businesses are currently operating below capacity to some extent. Consequently, there does not appear to be a pressing need to expand facilities or add to existing machinery and equipment.
For up-to-date insights on Canada’s economic state and trends, please see our real-time GrowthNow forecast.
Patricia is the Business Mentor and owner of Grow Vantage and a Past President of the Barrie Chamber of Commerce. She applies over 30 years of business experience (from start-up to corporate) to mentor entrepreneurs. Since 2011, she has held over 6,500 coaching and training sessions in-person and online. Through Ask For Directions Training, her entrepreneurial training program (and parent company Grow Vantage), and as a business coach, she works with start-ups who are new (or who have lost traction) to design, launch and grow their businesses. Along with 20 other expert instructors she teaches strategies in marketing, sales, communications, and finance, as well as practical techniques to increase productivity, and manage their businesses. In other words, everything entrepreneurs need to learn to grow and run their businesses successfully, and avoid the costly mistakes they can't even see coming - that lead to delays in growth and getting stuck.