Output growth accelerates to four-month high in July

Aug. 9, 2017 – Canadian manufacturers experienced a robust and accelerated improvement in overall business conditions in July.

The latest survey revealed the fastest rate of production growth since March, driven by improved new order books and supported by a further solid rise in employment numbers. At the same time, input cost inflation moderated to a nine-month low, with manufacturers attributing this to a stronger exchange rate against the U.S. dollar.

Demand for raw materials continued to strengthen, with the latest increase in purchasing activity the fastest since December 2014.

The headline seasonally adjusted IHS Markit Canada Manufacturing Purchasing Managers’ Index (PMI) registered 55.5 in July, up from 54.7 in June, to remain above the neutral 50.0 threshold for the seventeenth month running. Moreover, the latest reading pointed to the strongest improvement in overall business conditions since April.

Faster output growth was a key driver of the upturn in the headline PMI figure in July. Production volumes were expanded to the largest degree for four months, which survey respondents linked to improved demand and greater willingness to spend among clients.

July data indicated the steepest rise in total new work for three months. There were signs that the accelerated pace of new order growth was driven by domestic spending, as the latest increase in export sales was weaker than in June.

Manufacturing companies responded to rising workloads by hiring additional staff during July. A rebound in employment numbers has been recorded since October 2016, helped by improved business confidence and efforts to rebuild production capacity. Exactly 40 per cent of the survey panel forecast an expansion of output volumes over the year ahead, while only 5 per cent anticipate a reduction.

Increased production schedules resulted in the fastest rise in input buying for just over two-and-a-half years during July. Manufacturers also sought to boost their stocks of purchases, although the rate of inventory accumulation was only marginal.

Greater demand for manufacturing inputs continued to place pressure on supply chains. The latest deterioration in vendor performance was little changed since June and among the largest seen since early 2014.

Average cost burdens increased sharply in July, but the rate of inflation slowed further from April’s recent peak. Softer input price rises contributed to a moderation in output charge inflation for the third month running in July.

Regional highlights:
• Alberta & B.C. remained the best performing area for manufacturing growth in July
• The fastest rises in new orders were recorded in Alberta & B.C. and Ontario
• Manufacturing employment increased in all four regions monitored by the survey in July