Data signals improved conditions for Canadian manufacturers

April data pointed to another positive month for the Canadian manufacturing sector, with the latest survey pointing to higher levels of output, new business and employment, according to the RBC Canadian Manufacturing Purchasing Managers’ Index (RBC PMI).

Adjusted for seasonal influences, the headline RBC PMI registered 52.9 in April, down slightly from 53.3 in March, but above the neutral 50.0 value for the 13th successive month. The drop in the index since March mainly reflected slower rates of output and new business growth.

Nevertheless, supply chain disruptions persisted, leading to longer delivery times and another rise in backlogs of work. Meanwhile, manufacturers noted that input costs were pushed up by the weaker Canadian dollar, which in turn contributed to a solid increase in factory gate charges during the latest survey period.

“Though we saw a slight dip in April, it is encouraging to see Canada’s manufacturing sector continued to grow for what is now the 13th month in a row,” said Craig Wright, senior vice-president and chief economist, RBC. “Our bottom line continues to be that a strengthening U.S. economy alongside a more competitive Canadian dollar will support improving conditions for Canada’s manufacturers 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 April survey include: output expanded in April, but at a slower pace than in the previous month; job creation hit a five-month high; and there was a sharp rise in average cost burdens.

Manufacturers in Canada signalled that growth in production eased for the second month running in April, and was slightly slower than the average since the survey began in late 2010. The moderation in output growth reflected a slight slowdown in the pace of new business expansion in April.

Volumes of new work from abroad increased only marginally in April, and the rate of expansion eased over March. Companies that reported a rise in new export orders generally cited exchange rate depreciation and stronger underlying demand from the U.S.

Delivery times from suppliers lengthened in April, which manufacturers attributed to logistics bottlenecks and, in some cases, ongoing disruptions from adverse weather conditions. The latest deterioration in vendor performance was one of the sharpest seen over the past 2.5 years. As a result, backlogs of work accumulated for the third month running, and some manufacturers sought to increase their pre-production inventories in April. Stocks of finished goods also rose during the latest survey period.

Greater production requirements and resilient confidence about the economic outlook supported job creation across the manufacturing sector. The latest rise in employment levels was the fastest since November 2013, but still slightly weaker than the historical average.

April data indicated a further sharp rise in average cost burdens within the manufacturing sector. The rate of input price inflation eased since March, but was still one of the fastest recorded over the survey history. Meanwhile, the latest survey pointed to a solid rise in factory gate charges, which extended the current period of output charge inflation to eight months. Manufacturers widely linked higher output prices to strong cost inflation in recent months.

Regional highlights include: all regions posted an increase in manufacturing output in April; Quebec was the only region to register a decline in new order volumes; Ontario reported the sharpest lengthening of supplier delivery times; and Alberta and British Columbia continued to record the fastest pace of input price inflation.

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 here.