The Bank of Canada says workers were feeling upbeat about job prospects, while employers felt otherwise in the weeks before COVID-19 delivered a shock to the Canadian economy.The Canadian Press
The Bank of Canada’s latest poll of Canadian businesses shows the COVID-19 crisis has inflicted severe damage on the oil and gas sector and many consumer-oriented businesses – but that conditions were deteriorating even before the pandemic hit.
The central bank conducted interviews with “a small sample” of businesses and industry groups from March 13 through 17, and oil and gas companies specifically from March 12 through 18, as a follow-up to its regular quarterly business outlook survey, which concluded in early March. Those interviews found that sales have “collapsed” in many consumer segments, while plunging oil prices and “financial stress” have gutted oil companies’ capital spending plans.
“Businesses in the accommodation, food services and recreation industries reported that their sales, orders and reservations had collapsed. Several firms had already closed or expected to soon close their operations due to declining cash flow," the report said.
“Non-food retailers reported a dramatic drop in foot traffic and were scaling down their operations. Businesses in these industries were drastically laying off staff or reducing staff hours in line with operations,” it said.
However, grocery retailers and related transport businesses reported that “sales had reached unprecedented levels,” the bank said.
The findings predate the bulk of the government-mandated retail closings that came in the second half of March.
In the oil and gas sector, “The majority of firms viewed the current oil price shock as worse than the episodes of significant oil price declines in 2008 or 2015," the bank said. “Many of these businesses reported that low oil prices were leading to financing and liquidity issues and were forcing them to reduce costs and operations."
Oil and gas companies reported they have cut their 2020 capital spending budgets by 30 per cent, on average, compared with 2019. “In addition, significant staffing reductions were imminent, especially among oilfield service companies,” the report said.
“This survey highlights the need for policy makers to provide more targeted support to the oil and gas industry,” Royal Bank of Canada senior economist Josh Nye said in a research note. “It’s likely that the energy sector’s challenges will extend beyond the containment measures currently in place.”
The Bank of Canada noted that non-energy businesses are taking more of a “wait-and-see approach” on capital spending, with many putting plans on hold to preserve cash.
The bank released the results together with its regular business outlook survey, which was conducted from Feb. 11 through March 6 – before the widespread economic disruptions stemming from COVID-19. It also released its quarterly survey of consumer expectations, conducted from Jan. 29 through Feb. 19.
The bank’s business outlook survey indicator, a composite gauge of the survey’s findings, dipped into negative territory – a signal that "business sentiment had softened even before the concerns around COVID-19 intensified in Canada,” it said. Hiring intentions dipped to their lowest level since mid-2016, while intentions for investment in machinery and equipment remained near 3½-year lows.
However, the consumer survey was modestly positive, with expectations for employment, household income and house prices up slightly.
The two surveys provide important indicators for the Bank of Canada’s next economic outlook update in its quarterly monetary policy report, due out April 15. Bank of Canada Governor Stephen Poloz has stressed that business and consumer confidence will be critical in determining whether the COVID-19 shock proves to be a short-lived, albeit deep, downturn or a longer-lasting recession.
“It’s a very big question about whether consumer confidence and business confidence can be maintained,” Mr. Poloz said in a March 27 news conference, adding that the government’s massive aid package and the Bank of Canada’s deep interest-rate cuts over the past month “are aimed at doing that.”
“A recession truly is when a degree of pessimism enters into firms. That results in layoffs, and that makes pessimism among consumers, and that makes them spend less, and that causes firms to cut back even further. That’s a negative cycle of pessimism,” he said.
While the Bank of Canada only conducts its business and consumer surveys on a quarterly basis, Statistics Canada and the Canadian Chamber of Commerce are working on a new, more timely gauge of business sentiment in the COVID-19 crisis. The organizations announced Monday that they will collaborate on the Canadian survey of business conditions, which will tap the chamber’s 200,000 member companies to generate “time-sensitive data about what businesses are going through and how they are planning for the eventual recovery.”
The polling, done through an electronic questionnaire, will begin this week. Statscan expects to start publishing results by the week of April 20.
“The survey may be repeated in the coming weeks, depending on how the situation progresses,” the organizations said in a news release.
Editor’s note: An earlier version of this story had an incorrect name for a Royal Bank senior economist. His name is Josh Nye, not John Nye. This version has been corrected.
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David Parkinson