Manufacturing AUTOMATION

Manufacturing conditions marginally improve in November: RBC

December 4, 2012
By Manufacturing AUTOMATION

The RBC Canadian Manufacturing Purchasing Managers’ Index signalled that Canada’s manufacturing sector grew only marginally in November, the weakest rate of growth since late 2010.

A monthly survey, conducted in association with Markit, a leading global financial information services company, and the Purchasing Management Association of Canada (PMAC), the RBC PMI offers a comprehensive and early indicator of trends in the Canadian manufacturing sector.

The headline RBC PMI – a composite indicator designed to provide a single-figure snapshot of the health of the manufacturing sector – fell from 51.4 to 50.4 in November, and indicated the weakest rate of manufacturing growth since data were first available in October 2010.

The fall in the RBC PMI partly reflected incoming new work remaining broadly unchanged from October and the first contraction in output in 26 months of data collection. Manufacturers generally cited weak market conditions. Nevertheless, firms continued to hire additional staff in November, although the rate of job creation was only modest and the slowest since April.

“Minimal growth in the manufacturing sector in November likely reflects the continued global economic uncertainty and the time-lagged impact of other indicators suggesting that the Canadian economy weakened during the third quarter,” said Craig Wright, senior vice-president and chief economist, RBC. “We expect the economic weak patch to be short lived, however. As the downside risks plaguing the global economy start to ease, so will some of the weight on Canadian export demand and the broader manufacturing sector.”

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

Key findings from the November survey include:

• RBC PMI falls to lowest level in 26 months of data collection;
• Output declines in November, while new orders broadly unchanged from October; and
• Rate of job creation at seven-month low.

The volume of new orders received by Canadian manufacturers was broadly unchanged from October, with panelists largely linking this to weak market conditions. New export orders meanwhile fell modestly and for the first time since February.

The flat new orders trend was one of the factors behind a fall in production during November. This was the first reduction in output in 26 months of data collection, but the rate of decline was only marginal. Stocks of finished goods, meanwhile, were depleted, in contrast to accumulation one month previously, and backlogs of work fell sharply and for the second month running.

Reflective of lower output requirements, the quantity of inputs bought by manufacturing firms fell during the latest survey period. Stocks of purchases were also reduced, with a number of panelists attributing this to leaner inventory requirements.

Suppliers’ delivery times nonetheless lengthened further in November, with approximately 11 per cent of firms reporting increased lead times since October. Respondents suggested that suppliers were working with less stock and that some vendors were also affected by Hurricane Sandy.

Manufacturing employment in Canada increased for the tenth consecutive month in November. Where higher staffing levels were reported, firms commented on replacing employees who had recently left. However, the rate of job creation was only modest and the slowest since April.

Firms reported a further rise in cost burdens during the latest survey period, with this largely reflective of higher raw material prices. That said, the rate of input price inflation was the weakest in three months and slower than the series average. Manufacturers’ selling prices also increased in November as panellists passed on greater costs to clients. Despite having quickened since October, the latest increase in output prices remained modest overall.

Regional highlights include:

• Alberta and British Columbia and Ontario were the only Canadian regions to post improved manufacturing operating conditions in November.
• New orders fell in three regions, with only Ontario recording an increase in new work since October.
• The strongest rate of employment growth was posted in Alberta and British Columbia.
• Input prices rose at the fastest rate in Alberta and British Columbia, while the slowest increase was recorded in Quebec.

“November was one of the most difficult months for Canadian manufacturers in the past two years, with RBC PMI data showing a month-over-month fall in production and new order growth grinding to a halt. This reflected weaker domestic and export market conditions,” said Cheryl Paradowski, president and chief executive officer, PMAC. “Nonetheless, firms continued to hire additional staff, although the rate of job creation slowed for the sixth month running and was only modest.”

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