Manufacturing sector expands modestly in June: RBC

The Canadian manufacturing sector continued to expand in June, with sustained growth in output, new orders and employment, 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 – suggested a moderate improvement in Canadian manufacturing business conditions in June. At 52.4, the headline index remained above the 50.0 no-change mark and was at the second-highest level since last September, despite a dip from 53.2 in May.

The RBC PMI signalled ongoing growth of both output and new orders in June. Although having eased since May, the latest expansions were nonetheless stronger than those registered at the beginning of the year. Reflecting increased new work, manufacturers continued to add to their workforces, hiring staff at a faster rate than the series average. Meanwhile, a stronger rise in input costs added pressure to margins, especially as output charges were unchanged from one month earlier.

“Canada’s manufacturing sector continued to expand in June – a sign that the slowdown earlier this year was in fact a temporary blip,” said Craig Wright, senior vice-president and Chief Economist, RBC. “Moving into the second half of 2013, an anticipated strengthening in international demand will help the sector shake off its relatively lacklustre performance it has recorded over the past year.”

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

Key findings from the June survey include:

• both output and new orders increase solidly, but at weaker rates;
• suppliers’ delivery times shorten for first time in 33-month series history; and
• rate of input price inflation accelerates to three-month high.
Manufacturers received a larger volume of new orders in June, and generally attributed this to greater client demand. New export work also rose over the month, with firms particularly mentioning an increase in new orders from Europe. Overall, total new order growth was solid, but slower than the 11-month peak recorded in May.

Firms raised their production levels and depleted stocks of finished goods in light of higher new order requirements. Output increased for the second consecutive month in June, with the latest rise broadly in line with the series average. Meanwhile, backlogs of work fell, but the reduction mostly reversed an increase in May.

Concurrently, the quantity of inputs bought by manufacturing companies rose further during June. Stocks of purchases were meanwhile broadly the same as in May, with two-in-three panellists reporting no change in input inventories.

For the first time in the 33-month series history, lead times for inputs fell during June. A number of survey respondents suggested that vendors were less busy and were actively reducing the amount of work-in-hand. Nonetheless, suppliers’ delivery times shortened only marginally.

Manufacturing employment in Canada continued to rise in June, with one-in-five surveyed firms hiring additional staff since May. Anecdotal evidence linked job creation to the recent expansion in new orders. Overall, the rate of employment growth was solid, but slightly weaker than the nine-month high recorded in the previous survey period.

Input costs faced by manufacturers increased in June, with higher raw material prices, particularly for steel, commonly reported by panellists. The rate of inflation was the strongest in three months, but remained weaker than the series average. Meanwhile, firms left their output charges unchanged from May. This ended a 14-month sequence of increases.

Regional highlights include:

• Manufacturing business conditions improved in three out of the four Canadian regions, with the exception of Alberta and British Columbia.
• Manufacturers in Quebec reported a strong rise in output during June.
• Manufacturing employment was largely unchanged in Alberta and British Columbia, but rose elsewhere.
• Ontario posted the weakest rise in input prices in June.

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.