April 6, 2011 / 2:45 PM / 6 years ago

Canadian business surveys show rising confidence

TORONTO (Reuters) - A pair of business sentiment surveys for March showed growing confidence in the Canadian economy on Wednesday, as purchasing activity soared and small business optimism held steady.

Purchasing activity rose to 73.2 last month from 70.8 in February, according to the Ivey Purchasing Managers Index, a joint project of the Purchasing Management Association of Canada and the Richard Ivey School of Business.

The index, which is broadly similar to that of the U.S. Institute for Supply Management, was well above the median view of 62 expected by economists in Reuters survey.

“This outcome is stronger than the CFIB small business survey earlier today, but is more business survey evidence of a speed up in Canadian economic activity,” said Jonathan Basile director of economics at Credit Suisse.

The Canadian Federation of Independent Business (CFIB) Business Barometer Index was at 69.2 in March, little changed from February’s 69.4. The index has indicated a “generally upbeat” mood since December.

A reading above 50 is the critical level for both surveys. It indicates expansion for the Ivey report, while it shows greater optimism by small business owners in the CFIB index.

Both reports come on the heels of the Bank of Canada’s first-quarter business outlook survey on Monday, which showed business leaders expect annual inflation between 2 percent and 3 percent over the next two years.

The central bank’s survey also showed companies remained upbeat in the first quarter about the economic outlook, but were slightly less bullish on future sales and investment intentions compared with the fourth quarter.

That survey also reinforced the growing view that the central bank will resume raising interest rates later this year. Yields on overnight index swaps, which trade based on expectations for the central bank’s key policy rate, have fully priced in a rate hike by September. But odds of July have been edging up in recent sessions.

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While the March Ivey index was stronger than anticipated, the indicator has had mixed results.

“The monthly movements in the index should be interpreted with caution,” said Krishen Rangasamy, an economist at CIBC World Markets. He pointed to January’s result, which slumped below a 50 reading, which implied contraction, but coincided with the country’s highest monthly GDP growth in 14 months.

The employment, inventories and prices subindexes all fell in March from February, but remained above 50. The supplier deliveries component rose from February.

Still, the Canadian dollar extended gains to a three-year high at C$0.9572 to the U.S. dollar, or $1.0447, after the Ivey data was released. The currency was also firmer than Tuesday’s North American finish of C$0.9639 to the U.S. dollar, or $1.0375.

The CFIB survey should also be taken with a grain of salt, Credit Suisse’s Basile said, noting the association had warned that the majority of responses were logged before the disasters in Japan and the federal election call in Canada.

Details of the report were mixed, showing some regional and industry divergences in optimism.

Reporting by Ka Yan Ng; editing by Peter Galloway and Rob Wilson

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