RBC PMI drops to new record low in December 2015

Jan. 8, 2016 – The Canadian manufacturing sector experienced another reduction in output volumes and new business intakes at the end of 2015, with the latest deterioration in overall conditions the sharpest since October 2010, according to the December RBC Canadian Manufacturing Purchasing Managers’ Index (RBC PMI).

Adjusted for seasonal influences, the RBC Canadian Manufacturing PMI registered 47.5 in December, down from 48.6 in November and below the neutral 50.0 threshold for the fifth consecutive month. The latest PMI reading was the lowest in just over five years of data collection, largely reflecting weaker contributions from the output, new orders and employment components.    

Canadian manufacturers signalled a decline in production levels for the fifth month running in December, which was overwhelmingly linked to weaker domestic demand patterns. Although new export work picked up slightly, and at the fastest pace since June, overall volumes of new work decreased at a survey-record pace, says RBC. Companies that reported a rise in export sales generally linked this to support from the weaker exchange rate, alongside successful efforts to enter new overseas markets. At the same time, survey respondents noted that falling domestic demand, especially for investment goods, had driven the overall decline in workloads at the end of 2015.

Key findings from the December survey included:

• Sharpest deterioration in business conditions since the survey began in 2010;
• Output, new order volumes and employment all decline at faster rates in December; and
• Factory gate charges decrease for the first time since August 2013.

“Business conditions in the Canadian manufacturing sector fell at a survey-record pace in December as weaker domestic demand and ongoing uncertainty in the energy sector continues to take its toll,” said Craig Wright, senior vice-president and chief economist, RBC. “Across Canada, Alberta and British Columbia experienced the sharpest deterioration in conditions, while Ontario continued to be a national bright spot, posting a sustained rise in output production. As the U.S. economy strengthens, we expect to see improvements in Canadian manufacturing sector activity levels.”

The monthly survey, conducted in association with Markit, a financial information services company and the Supply Chain Management Association (SCMA), offers an early indicator of trends in the Canadian manufacturing sector.

Regional highlights include:

• Alberta and British Columbia experienced by far the sharpest deterioration in business conditions;
• Ontario continued to buck the national trend, recording a sustained rise in manufacturing output; and
• Lower levels of manufacturing employment were recorded in all regions except Ontario.

“December’s survey findings indicate that the Canadian manufacturing sector faced another difficult month, with overall business conditions deteriorating at a survey-record pace as falling domestic sales continued to bite,” said Cheryl Paradowski, president and chief executive officer, SCMA. “Another slight rebound in export order volumes was the main positive development at the end of 2015. The weaker loonie is supporting manufacturers as they look to enter new export markets, but rising manufacturing sales abroad have not yet been able to offset falling workloads from domestic sources and the energy sector in particular.”