Bank of Canada sees 'encouraging signs' outside of oil sector

The Bank of Canada says business sentiment in this country is generally starting to improvethanks to a strengthening U.S. economy, but low oil prices are still drawing blood inenergy-related sectors, leaving the door open for another rate cut.

In itsquarterly business outlook survey, the central bank surveyed 100 representative companies across various industries.

It found that "while forward-looking indicators of business activity remain low, they edged up modestly, supported by a generally positive outlook for the U.S. economy. However, sales expectations deteriorated sharply in energy-producing regions, where the oil price shock continues to weigh importantly on business sentiment."

Across all industries, the outlook for sales is optimistic, with 40 per centof those surveyed expecting sales to grow at a faster rateover the next 12 months. Many firms attributed that projectionto the U.S. economy and the lower Canadian dollar.

In terms of hiring, the survey found businesses overallhave weak intentions still below post-recession levels. But when the energy sector is stripped out, there are plans to boost investment in sectors like manufacturing which benefit from a low loonie and slumping oil prices.

The Bank of Canada's summer survey was conducted between mid-May and mid-June.

Capital spending cuts

A separate reading of sentiment is far less rosy, andshows businesses across the board are slashing spending plans.

Based on a survey of 25,000 public and private companies by Statistics Canada, capital expenditures in non-residential construction and machinery and equipment are expected to total $251.8billion in2015, down4.9 per centfrom2014.

Unsurprisingly, the deepest cuts are in the mining, quarrying, and oil and gas extraction sector, which expects to spend 18.7 per centless this year than in 2014.

However, it's important to note the timing of that survey. The sectors were interviewed betweenOctober 2014 andJanuary 2015, when the oil price shock led to an "atrocious" first quarter, as described by Bank of Canada governor Stephen Poloz. The economy shrank 0.6 per centin the first three months of the year, the largest contraction since2009.

Coming rate announcement

Those fresh surveys give theBank of Canada more data to chew onahead of its next rate announcement on July 15, when it will decide to either hold, cut, or hike its key overnight lending rate.

The central bankshocked almost everyone in January when itcutits trendsetting interest rate to 0.75 per cent in January after keeping it at one per cent since September 2010.

BMO senior economist Benjamin Reitzes sees Monday's survey results as upbeat and "lower the odds of a move."

Others might disagree. With four straight months of negative economic output andthe Bank of America predictinga recession in Canada, many economists have beenforecastinga further rate cut.

Financial markets werepricing in a 96 per cent chance of a 25-basis-point rate cut over the next 12 months, according to a Monday morning currency outlook from Scotiabank Foreign Exchange.