Business Confidence Declines for the Fifth Straight Quarter As Recession Fears Mount

• In October, The Conference Board of Canada’s Index of Business Confidence fell 1.3 points to 77.8 (2014=100), the lowest level since the third quarter of 2020. The survey was conducted between September 21 and October 18, 2022.
• Canadian executives continue to worry about the direction the Canadian economy is headed. Eighty-eight per cent of survey respondents said that they expect overall economic conditions in Canada to worsen or remain the same over the next six months. This is roughly four percentage points higher than the previous survey in July 2022.
• Sixty per cent of survey respondents said that they expect prices in Canada to rise at an annual rate of 5 per cent or greater over the next six months, which is a minor improvement over the 64 per cent in July. Meanwhile, 8 per cent believe that prices will increase at an annual rate of 8 per cent or greater, which is also an improvement over the 18 per cent in the last report.
• Seventy-nine per cent of respondents believe that their firm’s financial position will worsen or remain the same in the next six months compared to 71 per cent in July. Thirty-seven per cent of respondents believe that their firm’s financial position will worsen.
• When asked if it’s currently the right time to undertake expenditures to expand their plant or add to their stock of machinery and equipment, only 19 per cent said it’s a good time compared to 29 per cent in July. Eighty-one per cent said they are either not sure or consider it to be a bad time.
• On a more positive side, executives are becoming optimistic about supply chain challenges easing over the next six months. Forty-one per cent of executives believe that supply chain disruptions will improve over the next six months, which is 18 percentage points higher than in July. Twenty per cent believe supply chain disruptions will worsen, while 39 per cent think it will remain the same.

Key Insights

The Index of Business Confidence falls for the fifth-consecutive quarter, something not seen in fourteen years. During the 2007-08 financial crisis, the Index declined for six-consecutive quarters before reversing course from the first quarter of 2009. Currently, the index has been trending lower consistently since the third quarter of 2021, reflecting the persistent worry Canadian executives have had over the state of the economy. It’s also not difficult to imagine the Index continuing to trend lower in the next several quarters, as the Canadian economy slows down and signs of labour market fragmentation emerge.