Manufacturing growth weakens further in August

Canada’s manufacturing sector grew in August, although at its weakest pace in five months, according to the RBC Canadian Manufacturing Purchasing Managers’ Index.

 The headline RBC PMI – a composite indicator designed to provide a single-figure snapshot of the health of the manufacturing sector – indicated a solid improvement in Canadian manufacturing business conditions in August. However, having fallen slightly from 53.1 in July to 53.0, the PMI remained below the series average of 54.2 and signaled the weakest manufacturing expansion in five months.

The RBC PMI indicated further increases in both output and new orders in August. However, the rate of output growth was unchanged from July’s four-month low, while the expansion for new orders remained below the series average. Employment also increased over the month, but the rate of job creation slowed slightly to its weakest since April. Input prices meanwhile increased in August, reversing the marginal decline in July.

“In contrast to declining manufacturing conditions around the world, particularly in the U.S., Euro area and China, the Canadian manufacturing sector is continuing to grow, albeit at a moderately slower pace,” Craig Wright, senior vice-president and chief economist, RBC, said in a statement. “It is encouraging to see that new export orders rebounded and manufacturing firms reported that they continued to hire employees in August, which may provide a favourable early indication in advance of the broader Canadian employment report due out on Friday.”

In addition to the headline RBC PMI, the survey also tracks changes in output, new orders, employment, inventories, prices and supplier delivery times.

The volume of new orders received by Canadian manufacturers increased in August, with firms generally linking this to greater client demand. New export orders also rose over the month, with an increase in new work from the U.S. particularly mentioned by panellists. Overall, total new orders rose solidly from July, although the rate of growth remained slower than the series average.

Reflective of the rise in new work intakes, manufacturers across Canada raised their production levels in August. Output has risen in each month since data collection began in October 2010, but the rate of increase was unchanged from the four-month low recorded in July. Firms also depleted stocks of finished goods, albeit to a lesser extent than one month previously, and reduced the level of outstanding business for the third month running.

The amount of inputs bought by surveyed companies increased in August, with firms largely linking the rise in purchases to greater output requirements. Input inventories also rose over the month; however, the rate of stock accumulation was only slight overall. Concurrently, suppliers’ delivery times lengthened further during the latest survey period. However, the increase in input lead times was only marginal and the weakest in the 23-month series history.

Manufacturing employment in Canada increased for the seventh consecutive month in August, with approximately 18 per cent of firms hiring additional staff compared to July. Panellists generally attributed this to recent increases in new orders. Although remaining solid overall, the rate of job creation nonetheless slowed to its weakest since April.

In contrast to the marginal reduction recorded in July, input costs faced by Canadian manufacturers increased in August. Increased prices for fuel, wood and steel were all particularly mentioned by respondents. Overall, the rate of inflation was the strongest in three months. Firms partially passed on the increase in cost burdens to clients by raising their output charges. However, selling prices rose only modestly, despite the rate of increase hitting a four-month high.

Alberta & British Columbia and Quebec saw weaker manufacturing expansions in August. All four regions posted increases in new orders; however, the slowest rate of growth was reported by firms operating in Ontario. Ontario posted the weakest rise in employee headcounts during August. Alberta & British Columbia posted the strongest rate of input price inflation in August.

“Although the Canadian manufacturing sector grew at its weakest pace since March, the slowdown was less severe than in July and the pace of expansion remained solid overall,” said Cheryl Paradowski, president and CEO, PMAC. “An uptick in new export orders, reflecting greater demand from the U.S., contributed to a faster expansion in total new orders in August. However, the increase in new work did not translate into a stronger rise in production, with output growing at the same rate as in July.”