Growth slows in Canada’s manufacturing sector in May: RBC

Manufacturers in Canada signalled the slowest improvement in overall business conditions in four months during May, largely reflecting a further moderation in output growth, 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).

At 52.2 in May, down from 52.9 in April, the headline RBC PMI remained above the neutral 50.0 mark, but eased to its lowest level since January. The index was also weaker than the 53.3 average since the survey began in late 2010.

“May’s reading at 52.2 indicates that Canada’s manufacturing sector is still being held back by sluggish global growth,” said Craig Wright, senior vice-president and chief economist, RBC. “As we move forward, support for the sector is expected given easing economic uncertainty, improving growth prospects in the U.S. and a more competitive currency.”

The decline in the headline PMI reading during May was driven by a moderation in output growth to the slowest pace since August 2013. Meanwhile, the rate of new order growth across the manufacturing sector was unchanged from April, but was still the joint-weakest for 13 months. May data also indicated only a marginal pace of new export order growth. The latest increase in new business from abroad was the slowest since the current period of expansion began in April 2013.

Relatively subdued gains in incoming new business resulted in a moderation in capacity pressures across the manufacturing sector. This was highlighted by the rate of backlog accumulation easing to a three-month low in May. A slower rise in unfinished business also reflected ongoing employment growth during the latest survey period. The latest increase in staffing levels was the most marked since November 2013. Companies that boosted their staffing levels generally commented on the launch of new products and optimism about the wider economic outlook.

Slower output growth meanwhile contributed to a weaker increase in input buying during May. Latest data pointed to only a marginal rise in purchasing activity, with the pace of expansion easing from the four-month high registered in April. Manufacturers decreased their stocks of finished goods for the first time in seven months, while pre-production inventories also saw a renewed decline in May. Some companies cited inventory reduction policies in response to subdued new business growth at their plants.

Supplier lead-times lengthened again in May, but the latest deterioration in vendor performance was the least marked since January. Manufacturers that reported longer supplier delivery times generally cited low stocks at vendors.

May data signalled a further moderation in input cost inflation from the near three-year high recorded during March. Although still strong, the pace of input price inflation eased to its lowest in four months. Higher cost burdens again contributed to a robust increase in output charges across the manufacturing sector in May.

Regional highlights include: all four regions recorded an overall improvement in business conditions, but Quebec was the only region to register faster output growth than in April; job creation was also strongest in Quebec; and input cost inflation slowed in May across all four regions monitored by the survey.

“The manufacturing sector lost some momentum during May, as a moderation in new export growth contributed to the slowest rise in output since last August,” said Cheryl Paradowski, president and chief executive officer, SCMA. “That said, the latest survey pointed to resilient job creation at manufacturing companies, suggesting optimism about the longer-term business outlook. Manufacturers also indicated an easing of both supply chain pressures and input cost inflation in May.”

The report is available at www.rbc.com/newsroom/reports/rbc-purchasing-managers-index.html.