Canada's economy is experiencing its highest level since 2003

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Canada's economy is experiencing its highest level since 2003

The CBC's quarterly business outlook survey showed the third quarter of Canadian businesses to the highest level since 2003, thanks to sizable demand both domestically and abroad, according to the Bank of Canada s International Business Survey released Monday. As Canadians resume normal spending activities, this growing demand is prompting a larger share of firms to increase their capital expenditures and staffing levels over the next year. Note: this video has failed to load.

Check out the videos below to see other videos by our team. A growing number of respondents plan to increase wages to address challenges in attracting and retention labour, the bank said, corroborating other studies that suggest employers are grappling with worker shortages. Firms intend to continue passing increases in labour and other input costs on to their customers. The surge in demand supports a separate central bank report released on the same day, which showed consumers were gearing up to open their wallets and unleash their savings, even with the Delta variant making some spenders hesitant. More than 40 per cent of respondents reported saving more than usual during the pandemic, often because they reduced their spending, the bank said in its report. Respondents who accumulated savings plan to spend about one-third of these funds by the end of 2022 — in fact, they reported having already spent about 10 per cent of their extra savings in 2021. But a few headwinds continue to rein in the sentiment that the central bank will take into consideration ahead of its next interest rate and asset purchase decision on Oct. 27.

The survey took place between the end of August and middle of September, just as concerns surrounding supply constraints and inflation began ramping up. Consumers expect inflation to run above three per cent next year amid higher cost of living, particularly for food, gas and major purchases such as cars. Close to half of respondents to the Business Survey expect inflation to float above three per cent over the next two years, while 42 percent expect it to hover between two and three per cent. Policy makers at the Bank of Canada should likely pay attention to portions of the reports that indicate both the majority of businesses and consumers expect the temporary rally of inflation to be high — consistent with the bank s own narrative. Inflation increased from a year earlier to 1 year in August, the highest it has been since 2003, according to the latest data.

At the heart of businesses woes are capacity pressures which are leading some firms to pass on prices to consumers and limit sales. Supply Chain disruptions have hard hit businesses who reported congested ports and backlog of raw materials have become more severe since the second quarter with no sign of letting up until the second half of 2022. It prompted a record 65 percent of respondents to say they would either have some or significant difficulty meeting an unexpected spike in demand. Supply chain disruptions are limiting production and the replenishing of inventories, while labour shortages are leading to a reduction in operating hours for some businesses, writes Sri Thanabalasingam, a senior economist at Toronto-Dominion Bank, in a note to clients. If not solvent, these factors could weaken the pace of Canada s economy recovery. Labour shortages have intensified since last year, companies also reported, even though there slack was witnessed in the labour market. Unemployment fell in September to 6.9 per cent, the lowest level it has been since February last year. Firms blamed the labour squeeze on government income supports, health concerns among workers, lagging immigration, and an aging population plus a growing skills mismatch in the labour force. If RBC CEO is right about impending spending spree, interest rates will rise sooner than expected.

Canadian firms should unleash $150 billion cash pile to spur economic growth Firms also reported slightly higher retirement and quit rates among staff compared with pre-pandemic norms, suggesting that a change in worker preferences may be impacting the availability of labour, noted the bank in its report.

For our own companies, the employment intentions are at record highs in the third quarter, with a net 67 per cent of them saying they will add more people to help meet expectations for surging sales. However, firms don t anticipate that the labour market will fully recover over the next 12 months. Despite the increases in business and consumer inflation expectations for the near term, this report suggests that the Canadian Imperial Bank of Commerce can comfortably push back against the hawkish pricing price hike by markets, Royce Mendes, senior economist at the Bank of Canada, wrote in a note to clients.