Do Firms’ Sales Expectations Hit the Mark? Evidence from the Business Leaders’ Pulse

This paper replicates and extends the work of Altig et al. (2022) on firms’ subjective sales growth expectations using Canadian survey data from the Bank of Canada’s Business Leaders’ Pulse. We examine the formation, uncertainty and predictive validity of firm-level sales growth forecasts using subjective probability distributions from business leaders at a one-year-ahead horizon. The replication work performed here confirms several findings from Altig et al. (2022), including that expected sales growth predicts realized sales growth, subjective uncertainty predicts forecast errors and firms frequently revise their expectations, usually by small amounts. We also find that subjective uncertainty predicts the magnitude of forecast revisions and follows a V-shaped relationship with past sales growth. We extend the original analysis by further demonstrating that firms with weaker recent performance assign greater weight to future weak growth scenarios, and subsequently that these firms are more likely to underperform, suggesting expectations are grounded in real conditions. The results presented in this paper reinforce the value of firm-level survey data for macroeconomic forecasting and policy analysis and help validate the Business Leaders’ Pulse as a reliable source of firm-level expectations data.