In the second quarter of 2024, Canada’s economic landscape presents a mix of steady growth, persistent inflation, and labor market challenges. Statistics Canada has provided a comprehensive snapshot through its Canadian Survey on Business Conditions, conducted from April to early May.
Canada’s real gross domestic product (GDP) saw a modest rise of 0.8% year-over-year in February. Consumer inflation, though still a concern, has been kept below 3% in 2024, registering at 2.7% in April. The unemployment rate has remained static at 6.1%, though this reflects a 1.0% increase compared to the previous year.
A significant number of businesses continue to anticipate various cost-related obstacles. The Raw Materials Price Index showed a 4.7% increase in raw material costs in March, with a year-over-year rise of 0.8%. Additionally, average hourly wages climbed by 4.7% in April. As a result, 71.4% of businesses foresee facing cost-related challenges in the coming three months.
Inflation is the predominant concern, with over half (54.4%) of businesses expecting it to be a major obstacle. This sentiment is especially strong in sectors such as accommodation and food services (74.1%), administrative and support services (68.4%), and retail trade (64.8%). Rising costs of inputs, encompassing labor, capital, energy, and raw materials, are also a significant concern for 44.6% of businesses, particularly in agriculture, forestry, fishing and hunting (71.3%), accommodation and food services (62.5%), and manufacturing (55.5%).
Furthermore, 40.6% of businesses anticipate that rising interest rates and debt costs will pose a challenge, notably within agriculture, forestry, fishing and hunting (61.7%), accommodation and food services (52.1%), and administrative and support services (48.0%).
Labor-related obstacles have intensified from the first quarter, with 43.2% of businesses expecting these challenges in the second quarter, up from 39.4%. The primary labor-related concern is the recruitment of skilled employees, anticipated by 31.3% of businesses. This issue is most acute in accommodation and food services (42.8%), construction (37.7%), and administrative and support services (37.3%).
Additionally, labor shortages are expected by 24.9% of businesses, again with the highest concerns in accommodation and food services (41.2%), construction (37.8%), and administrative support services (34.4%). Retaining skilled employees is another significant challenge, anticipated by 21.9% of businesses, particularly in construction (28.2%), accommodation and food services (27.6%), and healthcare and social assistance (27.6%).
The pressures from labor-related obstacles are leading to increased working hours for management, reported by 46.3% of businesses facing such challenges. This issue is particularly pronounced in agriculture, forestry, fishing and hunting (59.5%), accommodation and food services (56.9%), and other services (52.9%). Other impacts include existing staff working longer hours (36.8%) and limitations on business growth (34.3%).
Despite these challenges, business optimism is on the rise. Nearly three-quarters (72.1%) of businesses report being very or somewhat optimistic about their outlook for the next 12 months, continuing an upward trend from 68.4% in the first quarter and 65.9% in the fourth quarter of 2023. About 20.7% of businesses expect an increase in sales over the next three months, led by sectors such as administrative and support services (32.9%), accommodation and food services (30.6%), and construction (25.5%). Additionally, 24.3% of businesses plan to raise prices for their goods and services.
Rising insurance costs are the most common real estate issue, affecting 45.3% of businesses, especially in accommodation and food services (64.4%), agriculture (61.6%), and retail trade (56.0%). Other significant real estate challenges include maintenance costs (43.6%) and rising property taxes (37.9%).
Innovation remains a key focus, with 12.4% of businesses introducing new or improved products from 2020 to 2023. The most common innovations include performance improvements (51.1%), new features (48.7%), and enhancements in user-friendliness (39.9%).
Natural disasters and weather-related emergencies have had varying impacts on businesses. While 85.9% of businesses report no impact from such events over the past year, those affected (14.1%) experienced significant disruptions, particularly in agriculture (87.2%), mining (85.1%), and wholesale trade (77.5%). Among impacted businesses, 22.5% were fully prepared, 55.1% were partially prepared, and 22.4% were not prepared at all.