October 11, 2013 / 3:30 PM / in 4 years

UPDATE 1-Bank of Canada poll: higher sales growth, uncertain investment

* Business survey shows more firms expect higher sales growth

* More see employment and capacity pressures

* But investment plans remain muted (Adds background; details on capacity pressure and investment plans; loan officer survey; reaction; paragraphs 5-11)

OTTAWA, Oct 11 (Reuters) - More Canadian businesses expect higher sales growth and employment and capacity pressures in the next 12 months, but uncertainty weighs on their investment decisions, a Bank of Canada poll showed on Friday.

The survey of senior managers of about 100 firms taken from Aug. 26 to Sept. 19, showed that they see a gradual U.S. recovery boosting sales prospects but only in a limited way, while persistent weakness in domestic demand restrained sales expectations.

Still, 52 percent expect higher sales growth and 26 percent the same, an improvement over the respective figures of 42 percent and 24 percent reported in the second quarter.

Eighty-seven percent of firms now expect their employment to be the same or higher as over the past 12 months, down from 91 percent in the second quarter, but just over three in 10 firms now report labor shortages restricting their ability to meet demand, compared with two in 10 in the second quarter.

The survey came on the same day that Statistics Canada reported a drop in September’s unemployment rate to 6.9 percent from 7.1 percent and average monthly job growth of 23,100 in the past six months.

The Business Outlook Survey is one method the central bank uses to try to gauge pressure on capacity. On Oct. 1 it said economic growth of at least 2-1/2 percent would be needed to make a meaningful dent in excess slack in the economy; it sees growth of only 2 to 2-1/2 percent in the second half of 2013.

Fifty-three percent of firms in the business survey said they would face difficulty meeting an unexpected increase in demand, up from 44 percent in the second quarter.

But that’s not translating into greater plans to invest in machinery and equipment. The balance of opinion on investment plans remains modestly positive, with 34 percent expecting higher investment and 27 percent lower, but slightly less positive than three months earlier.

As for the central bank’s inflation target of 2 percent, more and more businesses expect inflation to fall in the range of 1 to 2 percent. Seventy percent now see it in that range, compared with 64 percent in the second quarter and 52 percent a year earlier. Most of the rest see inflation at 2 to 3 percent.

“On aggregate, this survey is consistent with the sluggish growth backdrop that demands considerable monetary accommodation for at least another year,” David Tulk, chief Canada macro strategist at TD Securities, wrote in a note to clients.

A separate Senior Loan Officer Survey by the Bank of Canada pointed to continued easing in overall business-lending conditions. (Reporting by Randall Palmer; Editing by Kenneth Barry)

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