Companies brace for supply-chain and labour challenges

Amid supply-chain concerns and looming labour shortages, a declining share of Canadian businesses expect they’ll be able to ride out the next 12 months at current profit levels.

In its latest survey of business conditions, carried out between July and early August, Statistics Canada found a mixed outlook among firms: nearly one third (27.2%) of companies said they expect profits to decrease over the next three months, while only 13.7% saw profits rising.

More than half of respondents (53.9%) said that they can continue operating at current levels of revenue and spending over the next 12 months before they’d have to consider closing down, or bankruptcy. That’s down from 68.5% in the previous quarter, suggesting decreased optimism.

Still, only 6.8% of firms said that they have less than 12 months of runway before facing the prospect of closure. This is essentially unchanged from the prior period.

In the hard-hit accommodation and food-services sector, just 16.9% of firms said that they could continue operating at current levels for the next 12 months, down from 22.8% last quarter.

Additionally, the proportion of businesses that said they can continue operating at current levels before considering layoffs has slipped from 61.6% last quarter to less than half (49.4%) this quarter.

StatsCan said that its survey found that businesses are facing a variety of obstacles over the next three months, with the rising cost of inputs (such as labour, capital, energy and raw materials) cited most frequently (38.5%).

The threat of labour shortages was a close second, with 34.6% of businesses citing that as a likely obstacle in the same time frame.

The availability of supplies was seen as a likely problem for many companies, particularly in the construction (50.1%) and manufacturing (41.9%) sectors, StatsCan reported.

Fluctuating consumer demand was cited as an issue by 22.6% of businesses.

In terms of access to capital, RBC Economics said, “Businesses remained heavily reliant on government supports, with little change in utilization of those programs reported since Q2. But access to financing also appears to have improved.”

RBC also noted that more than half (55%) of businesses reported that they have the capacity to take on more debt, up from just 23% in the second quarter — “and that included improvement in the high-contact hospitality sectors where activity has bounced back significantly into the summer.”

For now, the impact of the Delta variant “remains the most significant near-term threat to the economic outlook,” RBC noted, adding that “high levels of vaccination are still expected to limit the economic impact relative to prior virus waves.”

The survey also found that more than one quarter (27.8%) of businesses said that some of their workforce would continue to work remotely after the pandemic, and that, as a result, 14.7% expect to reduce their office space.