Canada’s manufacturing sector records strongest expansion in five months: RBC

The February RBC Canadian Manufacturing Purchasing Managers’ Index (RBC PMI) pointed to the strongest expansion in Canada’s manufacturing sector since last September, although the rate of growth was only modest.

The headline RBC PMI – a composite indicator designed to provide a single-figure snapshot of the health of the manufacturing sector – indicated a modest improvement in Canadian manufacturing business conditions in February. However, at 51.7, the RBC PMI remained below the series average (53.6), despite having risen from the near survey-low of 50.5 in January.

The RBC PMI found that both output and new orders increased in February, partly reflecting greater demand and new client wins. The rates of growth were stronger than in January, but weaker than their respective series averages. Higher volumes of new work encouraged manufacturers to hire additional staff, with the rate of job creation at a four-month high. Meanwhile, the rate of input cost inflation slowed to a seven-month low and was modest in the context of historical data.

“The Canadian manufacturing sector fended off the February blahs with strengthening output and employment growth,” said Craig Wright, senior vice-president and chief economist, RBC, in a statement. “Greater demand from United States, Japan and China played a key role in boosting new export work which helped nudge output growth to the fastest pace of growth in the past six months. While it would be premature to suggest that the global economy is treading on a much brighter path, these modest improvements hint that better days may lie ahead.”

The headline RBC PMI reflects changes in output, new orders, employment, inventories, prices and supplier delivery times.

Key findings from the February survey include:

• RBC PMI at highest level since last September;
• Faster rates of output and new order growth, but both below respective series averages; and
• Input price inflation weakest in seven months.

The volume of new orders received by Canadian manufacturers increased for the third month running in February. Firms generally commented on new client wins, although greater global demand, particularly in the United States, Japan and China acted to boost new export work. Overall, the rise in total new orders was moderate and the strongest since last September.

Reflective of increased new orders, companies raised production in the latest survey period. Output growth was the fastest in six months, but weaker than the series average. Stocks of finished goods were meanwhile depleted for the second month running, and backlogs of work also fell further, although at the slowest rate in five months.

Manufacturing employment increased in February, with over 14 per cent of surveyed firms hiring additional staff since January. Although a number of panellists linked job creation to the increase in new work, other respondents cited improved business confidence. Overall, the rate of employment growth quickened from January’s one-year low to a four-month high.

The quantity of inputs bought by manufacturers was unchanged since January, while stocks of purchases were reduced for the fourth consecutive month in February. Concurrently, the latest lengthening of suppliers’ delivery times was to the greatest extent in seven months, with a number of panellists commenting that vendors experienced transportation problems relating to the recent heavy snowfall.

Although input costs faced by Canadian manufacturing companies continued to increase in February, the rate of inflation was the weakest since July 2012 and modest in the context of historical data. Firms particularly mentioned raw materials such as metals, chemicals and resin as having increased in price over the month.

Output charges also rose in February, as higher costs were generally passed on to clients. Although the rise in selling prices was the greatest in ten months, it was weaker than the series average.

Regional highlights include:

• All four regions saw an improvement in manufacturing business conditions in February. That said, the rates of growth were only marginal in both Ontario and Quebec.
• Manufacturers based in Ontario reported a slight reduction in output, while production increased elsewhere.
• Incoming new work fell in both Quebec and Ontario.