Real gross domestic product edged up 0.3% in May, following a 0.1% uptick in April. Inflationary pressures remain higher than recent historical trends after rising 3.3% year over year in July 2023, although this remains lower than the peak in June 2022 (+8.1%). Also in July 2023, employment was little changed (-6,000; -0.0%), while the unemployment rate increased 0.1 percentage points to 5.5%, marking the third consecutive monthly increase.
In this macroeconomic context, Statistics Canada conducted the Canadian Survey on Business Conditions from July to early August 2023. The survey collects information on the environment businesses are currently operating in and their expectations moving forward.
Businesses continued to expect to face a variety of obstacles related to supply chains, rising inflation, and rising costs. However, pressures faced by businesses have continued to ease in the third quarter of 2023 relative to the previous two quarters.
Nearly one in five businesses were facing challenges maintaining inventory levels or acquiring inputs, products or supplies, either domestically or abroad. Among these businesses, nearly one-quarter expected these challenges to worsen in the short term.
Nearly half of businesses expected their operating expenses to increase over the next three months. Additionally, one-third of businesses expected their profitability to decrease, and just over one-quarter expected to increase the prices they charge.
Rising inflation still the most frequent obstacle reported by Canadian businesses
Prices of raw materials purchased by manufacturers operating in Canada, as measured by the Raw Materials Price Index, fell 11.1% year over year in July 2023, following a 19.7% year-over-year decrease in June 2023. Meanwhile, average hourly wages rose 5.0% in July on a year-over-year basis, following increases of 4.2% in June and 5.1% in May.
In that context, rising inflation remained the most commonly expected obstacle by businesses over the next three months, with 56.6% of businesses expecting this to be an obstacle. The rising cost of inputs, including labour, capital, energy and raw materials, was the second most commonly expected obstacle, reported by 44.7% of businesses. Rising interest rates and debt costs was the third most expected obstacle, with 42.5% of businesses expecting this over the next three months. Additional cost-related obstacles such as the cost of insurance (34.7%), transportation costs (29.7%), and rising costs in real estate, leasing or property taxes (29.4%) were each expected by around 3 in 10 businesses.
When asked to indicate which of the businesses’ expected obstacles would be the most challenging, 14.7% of businesses identified rising inflation, 11.0% reported rising interest rates and debt costs, and 10.5% reported recruiting skilled employees. In the second quarter of 2023, the single most expected obstacles were rising inflation (16.4%), recruiting skilled employees (15.0%), and the rising cost of inputs (12.2%).
Business outlook and expectations related to sale of goods and services worsened since the second quarter of 2023
In the third quarter, 66.3% of businesses reported being either very optimistic or somewhat optimistic about their future outlook over the next 12 months, a decline from the previous quarter (73.5%). Nearly one-fifth (18.4%) of businesses expected their sales of goods and services offered to increase over the next three months, down from 25.9% in the second quarter. The industries that saw the largest changes from the second quarter were transportation and warehousing (-18.9%) and manufacturing (-16.4%).
Over the next three months, 25.9% of businesses expected to raise prices, similar to 28.3% during the second quarter of 2023. Moreover, 42% of businesses in retail trade and 40.8% in accommodation and food services, and 30.2% in construction and 29.8% in wholesale trade expected to raise prices over the next three months.
For other business characteristics, not many differences have been observed when comparing with the previous quarter. However, expectations on profitability differ by sector. 52.6% of businesses in transportation and warehousing expected profitability to decrease, and conversely, 16.6% of businesses in finance and insurance expected profitability to increase.
More businesses that are expecting supply chain challenges expect them to worsen in the short term
19.2% businesses expected supply chain challenges of some kind over the next three months, down from the second quarter (22.9%). Businesses in retail trade (32.3%) and wholesale trade (29.2%) were the most likely to expect various supply chain challenges over the next three months. Among businesses that expected supply chain challenges of some kind over the next three months, 36.1% reported that the challenges they experienced have worsened over the last three months.
Among businesses facing supply chain challenges, nearly one-quarter (23.2%) expected these challenges to worsen over the next three months, nearly two-thirds (63.4%) of businesses expected the situation to remain about the same, and 13.3% expected the challenges to improve. This is a shift from the previous quarter, when 14.7% expected supply chain challenges to worsen, 65.2% expected challenges to remain about the same, and 20.1% expected the challenges to improve.
Source: Statistics Canada