Businesses are generally optimistic about the pace of economic activity over the next 12 months, according to the latest Bank of Canada Business Conditions Survey.

They are, however, somewhat less positive than in the winter survey. Inflation expectations are modest, and the bank notes a shortage of financial planners.

Businesses expect the volume of sales to grow more strongly over the next 12 months than in the previous 12 months, owing primarily to vigorous growth in the U.S. and low interest rates, the survey report says. The primary risk to future sales growth is the ongoing adjustment to the rapid appreciation of the Canadian dollar in 2003, including potential second-round effects.

Business investment intentions are still “slightly positive,” it says. However, for those firms that are hurt by the exchange rate, intentions are weaker than in the previous survey.

“Investment intentions for expenditures on machinery and equipment remain somewhat positive. Reflecting advances in the prices of non-agricultural commodities, firms in the primary sector are the most optimistic about their spending intentions. Intentions are more restrained among firms that are negatively affected by the past appreciation of the Canadian dollar or concerned about the sustainability of the U.S. recovery. Others have lowered their investment intentions because of significant investments made last year,” it says.

Employment intentions are positive across most industries, although many firms are expecting only minor increases. “Employment intentions are strongest in the wholesale and retail trade sectors. The outlook is weakest in the manufacturing sector, particularly for firms adversely affected by the appreciation of the Canadian dollar.”

Businesses report little pressure on production capacity. Nearly 70% of firms reported that they would have no difficulty meeting an unexpected increase in demand. Excess capacity is most pronounced in Central Canada and in the manufacturing sector, the survey report says. For the companies that are experiencing constraints, the constraint is most often labour, although some firms are pushing against production capacity limits. Capacity constraints are most acute in the transportation and construction sectors.

Labour shortages remain essentially unchanged and are not widespread. “Shortages were most often mentioned in the trades and in specialized professions, including accounting, engineering, and financial planning.”

“Over the next 12 months, input prices are expected to increase more slowly, reflecting the lower cost of imports because of the appreciation of the dollar and a moderation in the costs of energy and insurance. Wage increases are expected to be moderate. Output prices are expected to increase at roughly the same rate over the next 12 months as in the past 12 months. This pricing outlook, which is somewhat firmer than that of the previous survey, partly reflects expectations that the Canadian dollar will be more stable in the next 12 months. Inflation expectations are well within the Bank’s inflation-control target range of 1% to 3%.”