- BOS indicator -0.33 vs -0.38 in Q2 (revised from -0.39)
- Future sales balance of opinion +42 vs +15 in Q2
- 18% of firms report an outright decline in sales over the past 12 months vs 22% in Q2
- 6% of firms expect a recession in the next year vs 17% in Q2
- 41% of firms expect inflation above 3% over the next two years vs 44% in Q2
- Consumers’ 5-year inflation expectations 3.91% vs 3.39% in Q2
- 53.0% of consumers expect a recession in the next 12 months vs 54.6% in Q2
Roughly three-quarters of the Business Outlook Survey interviews were done before Canada-US trade talks broke down and Ottawa announced new counter-tariffs so this data is already stale. The same goes for the consumer survey, where about three-quarters of responses came in before the August 21 breakdown. I’d argue that the ‘breakdown’ wasn’t that damaging but that’s up for debate.
In any case, the snapshot was decent. The jump in the future sales balance to +42 from +15 is a big move, and firms credited an easing of trade tensions and less Middle East risk.
Exporters were leaning on solid US demand and high oil prices. Investment intentions eased only slightly and remain robust. Hiring is the soft spot, with most firms planning to hold headcount flat.
The Bank of Canada addressed the timing problem head-on in a box looking at results collected after the talks collapsed. In the survey view, the new US tariffs and Canadian counter-tariffs are weighing on outlooks for exports and investment, pushing up costs and prices, and inflation expectations have risen alongside the tariffs and the rebound in energy. The BOC wrote:
Firms surveyed after trade talks broke down reported weaker sentiment and lower expectations for export sales than those surveyed beforehand. These recent results suggest that some of the improvement in firms’ outlooks reported earlier in the third quarter of 2026 has reversed. Nevertheless, sentiment and expectations remain considerably stronger than at the height of trade tensions in 2025, suggesting a moderation rather than a fundamental shift in firms’ outlooks.
Firms’ input and selling price expectations moderated but remain elevated, mostly tied to oil and trade. More worrying for the BoC: companies facing big cost increases plan to keep passing them on, and some see improved demand as the window to claw back margins they gave up earlier. That’s the kind of behaviour that keeps inflation sticky.
Consumer survey
The real red flag is on the consumer side. Five-year inflation expectations jumped more than half a point to 3.91%, rising to match elevated short-term expectations.
Long-run expectations catching up to short-run ones is exactly the de-anchoring central banks lose sleep over. And again, the BoC says expectations at all horizons moved higher after talks broke down, so the true number is likely worse.
Households reported better financial health thanks to asset gains and a bit more labour market confidence, but spending plans deteriorated from already-weak levels. High prices and uncertainty are the culprits. Interestingly, labour market perceptions improved for workers exposed to US trade but worsened for those in jobs at higher risk of AI task replacement.
Today’s CPI data was a good sign for the Bank of Canada but this survey raises some hawkish questions.
This article was written by Adam Button at investinglive.com.