Expansion could decline while discretionary spending takes a dip
The outlook for corporate profitability in Canada is weakening, according to the latest Conference Board survey.
Of the 49 industries covered in the board’s leading indicator of industry profitability index, more than half – 28 – posted a drop in their indexes last month.
“That was the highest number since June 2009. Not surprisingly, the overall index fell as well,” the business think-tank said Tuesday.
“With three consecutive months of decreases in the books, the near-term outlook for Canadian corporate profitability is negative.”
While the domestic economy started the third quarter on a positive note – growing 0.3 per cent in July – the weakness in the outlook for corporate profitability implies greater risks for economic growth going forward, the Conference Board said.
By extension, that could translate into lower investment and expansion and greater pressure on employment.
Confidence among owners of Canada’s small- and medium-sized businesses took a significant hit in August as they digested a string of bad news about the world economy.
As well the Conference Board of Canada’s consumer confidence index also showed increasingly pessimistic about the labour market.
“Growing pessimism about employment prospects leads almost inevitably to a pullback in discretionary spending,” it said.
“As Canadians scale back on their spending, the effect at the cash register is increasingly negative,” it added. “In July, retail sales in Canada fell for the first time in three months, dropping 0.6%. It was the poorest showing since April.”
