Canadian manufacturing hits eight-month high in July: RBC

Aug. 5, 2014 – Canadian manufacturers saw further improvement in overall business conditions during July thanks to faster rises in output, new orders and employment at the start of the third quarter, 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.

At 54.3 in July, up from 53.5 in June, the headline seasonally adjusted RBC Canadian Manufacturing PMI posted above the neutral 50.0 value for the 16th consecutive month. The latest reading was the highest since November 2013 and signalled a robust overall improvement in manufacturing sector business conditions.

“Canada’s manufacturers kicked off the second half of 2014 on stronger footing, clearly benefiting from improving global economic activity – it’s encouraging to see the momentum,” said Paul Ferley, assistant chief economist, RBC. “With the U.S. economy pushing ahead, we expect this trend to continue.”

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

Key findings from the July survey include:
• Sharpest improvement in business conditions since November 2013;
• A pick up in output and new orders growth;
• Staffing levels rose for the sixth successive month; and
• Stronger rates of output and new business growth were the key positive influences on the headline index in July.

Latest data signalled that production growth across the manufacturing sector accelerated for the second month running, and was the fastest since November 2013. New business growth also regained momentum so far this summer, with the latest rise in incoming new work the steepest it has been in eight months. Reports from survey respondents cited improving underlying demand and greater confidence among clients. Moreover, new business intakes were also supported by stronger export sales during July, with the rate of new export order growth the most marked since March.

Increased demand patterns contributed to an increase in backlogs of work across the manufacturing sector for the sixth consecutive month in July. The current period of rising volumes of unfinished work is the longest recorded by the survey for three years, which in turn supported further manufacturing job creation. Latest data pointed to a solid rise in payroll numbers with the rate of employment growth reaching its strongest since September 2013.

July data indicated that manufacturers continued to boost their volumes of input buying during July, and the latest expansion of purchasing activity was the steepest recorded in 2014 to date. Despite a solid increase in input buying, pre-production inventory volumes dipped for the third month running. Meanwhile, stocks of finished goods also decreased in July. The latest reduction in post-production inventories was the sharpest for 12 months, with some firms citing stronger than expected sales at their plants.

Meanwhile, input cost inflation eased further from the near-three year high seen during March. Although still sharp, the latest rise in average cost burdens was the least marked since January. A softer rise in input prices during July contributed to the weakest increase in manufacturers’ output charges since December 2013.

Regional highlights include:
• Quebec continued to register the strongest upturn in overall business conditions;
• All four regions signalled an increase in manufacturing employment levels, led by Quebec and Ontario; and
• New export orders rose in all four regions monitored by the survey.

“Canadian manufacturers have made a bright start to the third quarter of 2014, as highlighted by stronger production growth and another improvement in sales volumes during July,” said Cheryl Paradowski, president and chief executive officer, SCMA. “Therefore, the latest survey suggests a decisive shift towards faster growth across the manufacturing sector this summer, with output, new business and employment all rising at the fastest rates seen so far this year. Moreover, business conditions are improving against a backdrop of softening cost pressures, which in turn contributed to the slowest increase in manufacturers’ output charges since the end of 2013.”

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