Feb. 2016 PMI hits 49.4, the highest since August

Mar. 2, 2016 – Overall business conditions across the manufacturing sector moved another step closer to stabilization in February, according to the latest RBC Canadian Manufacturing Purchasing Managers’ Index (RBC PMI), with output and new orders both continuing to fall at slower rates than those seen at the end of 2015.

Greater export sales remained a key factor in providing support to Canadian manufacturers, as highlighted by a rise in new work from abroad for the fourth consecutive month, notes the survey. At the same time, the weaker exchange rate resulted in another robust increase in average cost burdens, with survey respondents widely commenting on higher prices for imported materials and a corresponding rise in factory gate prices, it adds.

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.

Adjusted for seasonal influences, the RBC Canadian Manufacturing PMI registered 49.4 in February, up fractionally from 49.3 in January, but below the neutral 50.0 threshold for the seventh month running. Nonetheless, the latest reading was the highest since August 2015, largely reflecting a softer decline in production levels during February.

“The U.S. expansion alongside a more competitive Canadian dollar is continuing to drive stronger export sales and stabilize manufacturing conditions,” said Craig Wright, senior vice-president and chief economist, RBC. “At a regional level, the sharp improvement in Ontario’s manufacturing sector during February was a key factor in raising the Manufacturing PMI to its highest level since August 2015.”

Key findings from the February survey included:

• Manufacturing PMI rose to its highest level since August 2015;
• Production levels dropped only slightly in February; and
• New export orders picked up for the fourth month running.

Manufacturing output has now declined for seven months running, but the latest fall was only marginal and the slowest over this period. Where a drop in production levels was reported, survey respondents commented on falling new business intakes and, in some cases, efforts to streamline stocks of finished goods. Stronger export sales helped to offset some of the reduction in domestic demand in February. A number of manufacturers noted that exchange rate depreciation against the U.S. dollar had boosted new business intakes from export clients.

Regional highlights include:

• Alberta and B.C. experienced the steepest deterioration in manufacturing sector performance, while Ontario registered an accelerated upturn in February;
• Higher levels of manufacturing employment in Ontario contrasted with sustained job shedding in Alberta, B.C and Quebec; and
• Price discounting persisted among manufacturers in Alberta and B.C, while factory gate charges increased in all other areas monitored by the survey.

“Ontario’s manufacturing sector continues to lead the way in Canada. The weak Loonie is powering export growth, but also contributing to the biggest growth in output costs in the province since 2011. The West of Canada continues to find it tough under the burden of low oil prices. Surprisingly Quebec continues to struggle despite good export growth due to weak domestic demand,” said Cheryl Farrow, president and chief executive officer, SCMA. “In Canada as a whole business conditions in manufacturing have now almost stabilized. Manufacturers still appear cautious about the near-term business outlook, with hiring freezes and efforts to chip away at inventories of finished goods persisting.”