Canadian manufacturing conditions improve considerably in May: RBC PMI

Operating conditions in Canada’s manufacturing sector improved at the strongest pace in 11 months in May, partly reflecting a sharp acceleration in the rate of new order growth, according to the RBC Canadian Manufacturing Purchasing Managers’ Index (RBC PMI).

The headline RBC PMI—a composite indicator designed to provide a single-figure snapshot of the health of the manufacturing sector—rose to an 11-month high in May. At 53.2, up sharply from 50.1 in April to a level broadly in line with the series average, the headline PMI index was above the 50.0 no-change mark that separates growth from contraction and consistent with a solid improvement in Canadian manufacturing operating conditions.

The RBC PMI found that manufacturing output increased for the first time in three months during May. The solid rise in production levels was supported by a much faster expansion of new orders, which also contributed towards the first increase in backlogs of work for eight months and encouraged firms to hire additional staff. On the price front, input costs rose modestly in May, with the rate of inflation little-changed from April’s nine-month low.

“Following the relatively slow pace of expansion recorded in March and April, the Canadian manufacturing sector perked up considerably in May, thanks to renewed vitality in new orders and job creation,” said Craig Wright, senior vice-president and Chief Economist, RBC. “As we navigate through the remainder of 2013, we expect the sector’s performance to improve further, boosting Canadian growth.”

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

Key findings from the May survey include:

• new order growth accelerates sharply to 11-month high;
• first increase in output for three months; and
• strongest rate of job creation since last August
The volume of new work received by Canadian manufacturers rose for the second month running in May. Firms generally reported greater client demand and new contract wins, as well a further increase in new export order volumes. Overall, the rate of total new order growth accelerated sharply since April to an 11-month high.

The solid rise in incoming new work contributed to an increase in production during May. Notably, this was the first rise in output in three months, with the rate of growth faster than the series average.

Concurrently, both the levels of work-in-hand and stocks of finished goods at manufacturing companies increased in the latest survey period. Although the rate of accumulation was modest, it was the first increase in backlogs of work for eight months.

The quantity of inputs bought by manufacturers rose for the second month running in May. Meanwhile, stocks of purchases were depleted further, albeit at the weakest pace in the current seven-month sequence of contraction. A number of companies cited a preference for leaner inventories in the latest survey period.

Suppliers’ delivery times lengthened further in May, partly reflecting raw material shortages at some vendors. However, the latest increase in lead times was only modest, with the corresponding index unchanged from April’s joint-survey record high.

Manufacturing employment in Canada increased in May, with approximately 22 percent of firms hiring additional staff since April. The rate of job creation strengthened to a nine-month high and was faster than the series average.

Manufacturers reported higher input costs over the month, with raw materials including wood and metals commonly recorded as having increased in price. However, the rate of inflation was only modest and much weaker than the series average. Panellists passed on greater costs to clients by raising their output charges, but the increase was nonetheless the weakest since last July.
Regional highlights include:

• Alberta and British Columbia was the only region to see a deterioration in manufacturing business conditions in May, but this was only slight and to a lesser extent than in April.
• Following reductions in April, output levels in both Alberta and British Columbia and Ontario increased in May.
• Manufacturing companies in Quebec reported the strongest increase in new export orders.
• Input costs faced by manufacturers in Ontario were broadly unchanged over the month.