Business Outlook Survey: Labour, demand and inflation predictions

Sales are forecasted to grow, but not at the same rate.

lukas-blazek-mcSDtbWXUZU-unsplashFor businesses plagued with uncertainty in recent years,  it seems like the hits just keep coming. But with some innovative pivots and reconfigured expectations based on reliable insights, growth isn’t just possible, it’s completely attainable.

That’s where the results from the Business Outlook Survey for the second quarter of 2022, in conjunction with findings from Business Leaders’ Pulse surveys from April, May and June 2022, come in. Overall, findings point to expectations of sustained elevated capacity pressures and continued price increases. The good news? Sales growth is expected to continue – but at a slower rate. Here’s a deeper look into the survey.

The BOS indicator, which measures overall business sentiment, remained high in the second quarter. Because of ongoing uncertainty brought on by persistent inflation, climbing interest rates, continuing issues within the supply chain, the war in Ukraine and the evolution of the pandemic, businesses expect wages and prices to grow more quickly, while creating more future risks. That said, most businesses didn’t expect these risks to further affect operations or their sales expectations.

The pandemic’s evolution is factoring into the trajectory of projected sales. Businesses expect sales growth will moderate, brought on by a shift towards more normal demand conditions. At the same time, strong sales growth is still expected, due in part to increased demand from domestic and foreign customers. Meanwhile, housing, natural resources and transportation businesses will likely experience slowing growth sales, and some expect labour shortages to limit growth.

Other businesses, such as those that offer hard-to-distance services, are forecasting sales growth at a rapid pace following eased restrictions and pent-up demand.

Excess demand, labour-related constraints and bottlenecks have been reported in the economy, and businesses are combatting these issues by changing suppliers, opting for substitutes and holding elevated levels of inventory.

Reported labour shortages over the last consecutive four quarters were more intense than a year ago, and suggests the labour market has tightened significantly over the last two years, likely due to aging populations, changes in workers’ job preferences and strong competition for workers. Approximately half of businesses expect these obstacles to continue over the next 12 months.

Businesses intend to keep their investment spending high, supported by strong domestic and foreign demand, long-term strategic plans and a desire to expand capacity or improve productivity. Investments in digitization and automation were pointed to as possible solutions for labour shortages.

After significant capital investments over the last few years, some businesses said that the prices of capital goods and higher interest rates may affect how viable their investment plans are, but that these aspects aren’t factoring in just yet.

With increasing demand, businesses hope to hire more workers, and some are reporting offering higher wages to stay competitive. Almost half of businesses expect wage increases will remain above pre-pandemic levels longer than the next 12 months. To retain staff and improve productivity, non-wage compensation, such as vacation days, health benefits and remote work are being offered more frequently than pre-pandemic years.

Inflation shows no signs of stopping, according to predictions. Businesses expect inflation will be more than 3% on average over the next two years, blaming ongoing supply chain problems, elevated commodity prices and strong economic conditions.

The survey questioned which circumstances would need to be in place for inflation to return to 2% and businesses reported higher interest rates, supply chain improvements, lower oil prices and resolved conflict in Ukraine, with some pointing to an eventual recession needed to support the return to a lower rate.

Almost all businesses expected inflation to return to 2% within the next five years.