Business activity suggests Canadian economy stalled last month

BMO Economics report shows that things looked weak in January, but it's not all bad news

Business activity suggests Canadian economy stalled last month
Steve Randall

Canadian business activity in January snapped the optimistic tone at the end of 2021.

With the Omicron variant prompting new restrictions and pressuring businesses, with many facing staff absence, hours worked slipped and unemployment ticked higher.

Stats analysed by BMO Economics for its Canadian Business Activity Index show a 2.2% decline in hours worked and a 0.5-point increase in unemployment. The index tracks monthly business activity with information on jobs, spending, sentiment, and other indicators.

January’s performance comes off the back of three positive months for the index.

While the food service and accommodation sectors saw notable declines, wholesale trade and manufacturing are also expected to have slowed in January after a positive previous quarter.

Sentiment among small businesses was also weakened significantly, but a bounceback as restrictions ease is likely.

Some positives

Retailers were less affected by conditions last month and Statistics Canada flash data suggests sales were up by around 2.4% after a slow December.

The housing market also continued to thrive with a gain for housing starts, and BMO economists are also predicting a further gain for business credit, which grew 1.8% in December and may post a 0.6% rise for January.

BMO concludes that January’s weaker index will soon be replaced by a speedy rebound.

Last spring showed that confidence and business activity are likely to rebound from virus-related restrictions, and BMO anticipates a faster pace this time.

With many provincial restrictions to hospitality businesses due to end next week and air passenger numbers starting to improve, there are reasons to be optimistic for the coming months.