Canada’s manufacturing growth hit 15-month high in September

Canada’s manufacturing expansion accelerated to a 15-month high in September, according to the RBC Canadian Manufacturing Purchasing Managers’ Index (RBC PMI). A monthly survey, conducted in association with Markit, a global financial information services company, and the Supply Chain Management Association (SCMA), the RBC PMI offers a comprehensive and early indicator of trends in the Canadian manufacturing sector.

The seasonally adjusted RBC PMI — a composite indicator designed to provide a single-figure snapshot of the health of the manufacturing sector — rose to 54.2 in September, up from 52.1 in August. This indicated further improvement in manufacturing business conditions, with the rate of growth above the series average and the fastest since June 2012.

The RBC PMI found that both output and new order growth accelerated in September. In particular, the latest rise in total new work intakes was strong and the fastest since June 2012. This partly reflected the greatest increase in new export orders for two-and-a-half years. Meanwhile, the rate of job creation also quickened to a 15-month high, as firms hired additional staff to handle increased business activity.

“The global economy is gaining traction, and with that we are seeing increasing demand for Canadian exports — particularly from the manufacturing sector, which has contributed to the PMI reaching a 15-month high in September,” said Craig Wright, senior vice-president and chief economist, RBC. “While challenges in the sector remain, this rebound is encouraging. An anticipated strengthening in global economic growth, particularly in the U.S., which is Canada’s largest trading partner, bodes well for manufacturing activity late this year and early next.”

Firms raised production in light of higher new order volumes. Output rose solidly over the month, and at the fastest rate since May. Nevertheless, outstanding business increased for the first time in four months and at the strongest pace for two years, while stocks of finished goods were broadly the same as in August.

The quantity of inputs bought by manufacturing companies increased for the sixth successive month in September. The rate of growth was solid and the strongest since August 2012. Stocks of purchases also increased, although the rate of accumulation was marginal.

Concurrently, suppliers’ delivery times lengthened further in the latest survey period, with panelists suggesting that vendors were generally busier and had leaner inventories. Overall, the latest increase in lead times for inputs was solid and the greatest for 15 months.

Employment growth in the Canadian manufacturing sector accelerated to a 15-month high in September. Approximately 17 per cent of firms hired additional staff since August, and generally attributed this to increased business activity.

Manufacturers faced higher input prices in September, with raw materials and transportation costs having increased over the month. That said, the overall rate of inflation eased slightly since August and was weaker than the series average. Firms passed on higher costs to clients by raising their selling prices. On average, output charges rose moderately and for the first time since May.

Manufacturing business conditions improved across all four regions, led by Alberta and British Columbia, the two provinces that also recorded the strongest rate of employment growth. New orders increased in Ontario, reversing a reduction one month previously. Meanwhile, Quebec saw the weakest increase in input prices in September.

The report is available at www.rbc.com/newsroom/pmi.