Canadian manufacturing output increases at fastest pace since March 2011

Business conditions in Canada’s manufacturing sector continued to improve in November, 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 seasonally adjusted RBC PMI – a composite indicator designed to provide a single-figure snapshot of the health of the manufacturing sector – registered 55.3 in November, signalling a strong improvement in Canada’s manufacturing business conditions. Although the headline index was down slightly from October’s 55.6, it was consistent with one of the fastest rates of growth for more than two years.

The RBC PMI showed that a marked rise in new order volumes, partly reflective of new client wins, supported the strongest increase in output since March 2011. Concurrently, firms hired additional staff in November, although the rate of employment growth eased to a four-month low. On the price front, inflationary pressures remained muted with the latest rise in input costs, in particular, weaker than October’s seven-month peak.

“Canadian manufacturing conditions continued to be quite favourable in November, although we saw a slight dip compared to the gains the sector made in October,” said Craig Wright, senior vice-president and chief economist at RBC. “While the U.S. government budget impasse negotiations did not come to a firm resolution, recent reports suggest that the fourth-quarter hit to U.S. growth will be limited following a solid gain in the third quarter. A slow and steady increase in U.S. growth will play a big role in setting the stage for a continuation in the recent momentum we have seen in Canadian manufacturing activity over the past few months.”

Incoming new work at Canadian manufacturers continued to rise markedly in November. Although the rate of new order growth eased slightly over the month, it was one of the fastest since data collection began in October 2010.

Firms generally cited greater client demand and new contract wins, including from the United States. Consequently, new export orders rose for the eighth consecutive month.

Firms raised production in light of larger new order requirements. Notably, the rate of output growth was marked and the second-fastest in the 38-month series history (on par with March 2011). Concurrently, stocks of finished goods increased in November, more than reversing a reduction in October, and backlogs of work rose for the third consecutive month, albeit marginally.

Meanwhile, the quantity of inputs bought by Canadian manufacturing firms rose strongly and at a pace only slightly weaker than October’s 25-month peak. The increase in purchasing activity was partially used to rebuild inventories, with stocks of purchases rising for the third month running. Greater demand for inputs was also a factor behind longer supplier delivery times in November. Lead times have increased in each month since July.

Manufacturing employment in Canada rose for the 22nd consecutive month in November. However, the overall rate of job creation slowed to a four-month low that was also weaker than the series average.

Input prices faced by Canadian manufacturing companies increased in November, with panelists commonly reporting higher prices for steel and fuel. Nevertheless, the rate of inflation eased to a moderate pace that was slower than the series average. Firms partially passed on their higher costs to clients by raising their selling prices.

Although output charges increased for the third consecutive month, the latest rise was only marginal.

Regional highlights include:

• Business conditions improved across all four Canadian regions. Alberta and B.C. saw the strongest improvement over the month.

• Alberta and B.C. posted the fastest rise in new orders.

• Ontario saw no change in exports, but this was an improvement from a reduction one month previously.

• Manufacturing employment was little-changed in Quebec.

“The Canadian manufacturing sector remained strong as we approach the year end. Higher domestic and export orders supported further growth acceleration for output, and also encouraged firms to start rebuilding their inventories,” said Cheryl Paradowski, president and chief executive officer, SCMA. “The Employment Index was a disappointing result from the survey, having showed the rate of job creation ease to a four-month low, but perhaps this will pick up if the strong performance of the sector continues.”

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