Solid March growth for manufacturers: RBC report

Solid growth in output and new business were recorded across the Canadian manufacturing sector in March, according to the RBC Canadian Manufacturing Purchasing Managers’ Index (RBC PMI).

At 53.3 in March, up from 52.9 in the previous month, the headline RBC PMI was the highest since December 2013. The index has now registered above the neutral 50.0 value for 12 consecutive months and the latest reading indicated a solid pace of expansion across the manufacturing sector.

New export orders increased at the second-fastest pace since last October but, on a less positive note, there were widespread reports that supply disruptions had led to longer delivery times for raw materials and an associated increase in unfinished work in March. Meanwhile, input cost inflation was the steepest since May 2011, which manufacturers overwhelmingly linked to currency surcharges related to the weakening Canadian dollar.

“Canada’s manufacturers have experienced solid conditions for growth in the last year, and March was no different – we saw a nice uptick from a month earlier,” said Craig Wright, senior vice-president and chief economist, RBC. “We continue to expect that underlying economic conditions – a strengthening U.S. economy and a weaker Canadian dollar – will lay the foundation for a boost in domestic manufacturing in the near-term.”

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

Key findings from the March survey include: solid improvement in business conditions; a rebound in exports supported overall new business growth in March; and a weaker Canadian dollar contributed to further upturn in cost inflation.

The rise in the headline RBC PMI was driven by an improvement in new business growth from the six-month low recorded in February. Moreover, the latest increase in new work was the fastest in 2014 to date. Higher levels of incoming new business partly reflected an acceleration of new export order growth.

Production volumes continued to rise at a solid pace in March, but the rate of expansion eased fractionally over the month. The latest data suggested that manufacturers experienced delays in receiving raw materials from vendors, which weighed on output and created an accumulation of backlogs in March. This was highlighted by outstanding business volumes rising at the steepest pace since August 2011.

Average lead-times from suppliers lengthened to the greatest degree for just over two-and-a-half years in March. Anecdotal evidence cited a range of factors, including the Port of Vancouver strikes, rail transportation delays and ongoing logistics bottlenecks following adverse weather disruptions in the U.S. The latest data also highlighted delays in shipments of manufacturers’ finished goods, as signalled by post-production inventory levels rising at the strongest pace since November 2010.

Longer supplier delivery times and rising new business levels encouraged some manufacturers to build their stocks of inputs in March. As a result, pre-production inventory levels increased for the first time in four months, albeit at a marginal pace. Meanwhile, input buying rose at the fastest pace recorded in 2014 to date.

On the inflation front, input costs increased sharply, and the rate of inflation accelerated for the fourth month in a row. This in turn contributed to a further robust rise in factory gate charges in March, with the pace of inflation the steepest for almost three years.

Ontario recorded the fastest expansion of manufacturing production, while all four regions posted an acceleration of new export gains. Quebec experienced the most marked rise in employment, and Alberta and British Columbia posted the steepest increase in average cost burdens.

A monthly survey, conducted in association with Markit, a leading 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 report is available at www.rbc.com/newsroom/pmi.