Bank of Canada Releases Two Corporate Surveys

July 12, 2010

The Bank of Canada’s first rate increase of the cycle on June 1st was justified by evidence of economic recovery.  Even though pausing in April, real GDP still expanded 5.0% annualized over the latest six reported months.  Employment climbed 1.5% in the year to June, and service sector jobs soared 7.5% annualized last quarter.  Two quarterly surveys, whose results also depict strengthening momentum, were released by Canada’s central bank today.

The diffusion index for sales growth over the past year(+18 after minus 43 in 1Q) was positive for the first time in two years.  The outlook remains upbeat, although not as much so as in the prior survey reported in 2Q.  Employment had significantly robust +40 reading, but so did input prices and output prices.  48% of respondents expect inflation over the coming year to exceed the 2% target, all but 3 percentage points of which do not look for more than 3%.  Optimism about future sales had a reduced but positive diffusion index of +12, and the index for planned investment also settled back to +12 from +22.

A separate survey of senior loan officers revealed that business lending conditions during the second quarter had loosened in both price and non-price terms.  The overall index (percent with tighter conditions minus percent with looser conditions) had a looser reading of minus 24.78 compared to minus 18.94 in the first quarter, +33.39 in the second quarter of 2009 and +75.09 in 4Q08 when conditions were their most tight. 

These survey results give a further green light to officials to proceed with a second round of central bank rate increases at their next policy announcement scheduled for July 20.  That will be followed by the publishing of the bank’s Monetary Policy Report on July 22nd.

Copyright Larry Greenberg 2010.  All rights reserved.  No secondary distribution without express permission.



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