Firms still expect weak sales growth
Businesses continue to anticipate their sales growth will be weak over the next 12 months. One in five firms now expects an outright decline in sales. The dampening effect that higher interest rates have had on demand has broadened beyond firms tied to housing activity. Businesses linked directly and indirectly to consumer discretionary spending also think that high interest rates have curbed sales of their products and services and that this trend will continue. Furthermore, firms’ indicators of future sales (e.g., order books, sales inquiries) remain well below historical average levels (Chart 4, red line).
Still, several firms are anticipating an increase in domestic demand, pointing to:
- reduced uncertainty about the future path of interest rates, leading to less hesitancy among homebuyers
- fewer concerns about a recession
- upcoming large capital projects in the private and public sectors to help the transition to net-zero emissions or to support strong population growth
- improved supply chains allowing firms in the trade sector to work through backlogs, including for auto sales
- continued recovery from the pandemic
In addition, compared with recent quarters, fewer businesses are expecting sales growth to slow (Chart 4, blue bars). One reason for this is that their sales have already slowed—a smaller number of firms than in recent surveys had significant sales increases over the past year.