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Economic News

Businesses Are Feeling the Economic Headwinds: Business Investment and Profits Drop in Q3

November 29, 2024
Florence Jean-Jacobs
Principal Economist

Highlights

  • Profits of Canadian non-financial corporations dropped sharply in Q3 (-38.5% q/q annualized), after more modest declines in previous quarters (Q2 was revised down to a 5.4% q/q decline). This brings profits to their lowest levels since the pandemic (graph 1).
  • Profits declined for nearly half of non-financial industries, with the largest drops observed in telecommunications and mining and quarrying (except oil and gas), both of which experienced higher expenses amidst challenging market conditions. Net income also declined for motor vehicle manufacturers in a quarter marked by retooling at assembly plants. Higher earnings in the oil and gas and refined petroleum sectors partly offset the decline.
  • Non-residential business investment also disappointed in Q3, with real investments down 11.3% q/q annualized, erasing most of the gains from the previous quarter (+14.1% q/q annualized in Q2).
  • The drop in real investment in machinery and equipment entirely erased the prior quarter’s growth in that category. Reduced spending in aerospace and parts drove most of the decline (see table 1 for details). On the bright side, spending on intellectual property increased for a third consecutive quarter. 

Implications

Corporate results in Q3 confirmed that the market environment remains challenging and uncertain for many businesses. While interest rates and cost-related obstacles are easing, Canadian companies are not quite ready to press on the investment accelerator. Higher expenses (e.g., inputs, wages, debt External link.), still-subdued demand External link. and an uncertain trade environment appear to be constraining capital spending and expansion plans.

In a survey External link. conducted from October to early November, Statistics Canada found that nearly three-quarters of businesses were very or somewhat optimistic about their outlook over the next 12 months. But with President-elect Trump’s tariff threat, the outlook could worsen, especially for businesses that depend on exports to the US.

But now is not the time for businesses to play wait and see. With an aging workforce, planned reduction in population growth that could temper Canada’s labour supply, and a tough competitive environment, Canadian firms need to accelerate their digital transformation and invest in productivity-enhancing processes and equipment. This will allow them to distinguish themselves on value-added features and innovation. Our US counterparts are certainly doing so (graph 2).

NOTE TO READERS: The letters k, M and B are used in texts, graphs and tables to refer to thousands, millions and billions respectively. IMPORTANT: This document is based on public information and may under no circumstances be used or construed as a commitment by Desjardins Group. While the information provided has been determined on the basis of data obtained from sources that are deemed to be reliable, Desjardins Group in no way warrants that the information is accurate or complete. The document is provided solely for information purposes and does not constitute an offer or solicitation for purchase or sale. Desjardins Group takes no responsibility for the consequences of any decision whatsoever made on the basis of the data contained herein and does not hereby undertake to provide any advice, notably in the area of investment services. Data on prices and margins is provided for information purposes and may be modified at any time based on such factors as market conditions. The past performances and projections expressed herein are no guarantee of future performance. Unless otherwise indicated, the opinions and forecasts contained herein are those of the document’s authors and do not represent the opinions of any other person or the official position of Desjardins Group.