Manufacturing AUTOMATION

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Manufacturing expansion weakens in October: RBC


November 9, 2012
By Manufacturing AUTOMATION

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Canada’s manufacturing sector grew only modestly in October, with the rate of expansion the weakest since January, 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 – posted 51.4 in October, and was at a level indicative of only a modest expansion in Canada’s manufacturing sector. Moreover, having fallen from 52.4 in September, the rate of growth signalled was the weakest for nine months.

The RBC PMI pointed to only modest increases in both output and new orders during October. In particular, the rate of total new order growth slowed over the month, posting the weakest expansion since January, despite a stronger rise in new export orders. Meanwhile, input prices continued to increase solidly, but the rate of inflation nonetheless remained weaker than the series average.

“Canadian manufacturing continued to weaken in October though the PMI measure is still indicative of growth in the sector which is in contrast to flat to declining activity in most other countries,” said Craig Wright, senior vice-president and chief economist, RBC, in a statement. “This weakening may in part be related to continuing uncertainty around how fiscal imbalances in the U.S. and the Euro area will be resolved. Greater strength in the Canadian manufacturing sector may hinge on some of this uncertainty easing as policy measures outside of Canada are implemented.”

Key findings from the October survey include:

• Lowest PMI reading since January;

• Slower rates of output and new order growth; and

• Input price inflation remains weaker than series average.

The volume of new orders received by Canadian manufacturers increased at the weakest pace in nine months in October. Although greater client demand, particularly from key export markets such as the U.S. and Asia, contributed to the rise in total new orders, the rate of growth was only modest overall.

Manufacturing production also increased at a weaker pace in the latest survey period. Output rose only modestly over the month, with the rate of increase at a nine-month low. Firms meanwhile accumulated stocks of finished goods for the first time since June 2011, and reduced the level of outstanding business at the fastest pace since January.

Employment in Canada’s manufacturing sector continued to increase in October, with one-in-five surveyed firms hiring additional staff since September. Greater workloads were often cited by companies as the main factor behind the latest rise in employee numbers. However, the rate of job creation was modest overall and the slowest for six months.

The quantity of inputs bought by monitored companies increased further in the latest survey period, with some of the rise in purchasing volumes being used to build stocks. Input inventories have grown for seven consecutive months, although the latest expansion was weaker than that registered one month previously.

Concurrently, suppliers’ delivery times lengthened again in October. Anecdotal evidence suggested that some vendors had capacity issues in the month. The latest increase in lead times was only modest and weaker than the series average.

Firms reported that a wide range of raw materials had increased in price in October, with resin, fuel and oil-related products particularly highlighted. That said, the rate of input price inflation slowed since September and remained weak in the context of historical data. The rate of increase for output charges also eased over the month, with average selling prices rising only modestly from September.

Regional highlights include:

• Three out of the four broad Canadian regions saw weaker manufacturing expansions in October, with Ontario the only exception.
• Incoming new work at manufacturers in Alberta and British Columbia fell marginally over the month.
• Manufacturing employment in Quebec was broadly unchanged from September, but staffing levels rose elsewhere.
The rate of input price inflation slowed in all four regions during October.

“Growth of Canada’s manufacturing sector slowed further in October, with both output and new orders seeing their weakest month-on-month increases since January,” said Cheryl Paradowski, president and CEO, PMAC. “The latest data indicates a stronger expansion of new foreign orders, suggesting that soft domestic demand was offset by greater demand in key export markets such as the U.S. in October.”