Report: Canada’s manufacturing sector edges towards recovery in February

The seasonally adjusted S&P Global Canada Manufacturing Purchasing Managers’ Index (PMI) registered at 49.7 in February, up from 48.3 in the previous month. However, the number remained below the crucial 50.0 no-change mark, signalling that Canada’s manufacturing downturn has slowed.

Output and new orders fell only slightly. Employment rose as firms remained confident in the outlook. That said, there were further cuts to purchasing and inventories. Price trends meanwhile showed an accelerated rate of cost inflation. Output charges rose in response, but at the slowest pace since June 2023.

The relative improvement in the PMI reflected slower falls in both output and new orders. Production was only down slightly, and the decline in orders was modest. Many reports however showed that client demand was subdued, characterised by hesitant decision-making and a reluctance to commit to new contracts. This was especially the case for international demand, where sales declined for a sixth month running.

A similar trend to output and new orders was seen for purchasing activity. The latest data showed a nineteenth successive monthly fall, but one that was modest and the weakest since June 2023. There remained a preference amongst some firms to lean on inventories wherever possible, as highlighted by another drop in stocks of purchases. Several panellists also signalled a reticence to purchase new inputs given elevated prices. Input costs rose again in February, in line with the trend throughout much of the survey history. Panellists commented that suppliers were raising prices, linked in part to ongoing supply chain frictions (highlighted by a modest lengthening of average lead times). Higher input costs were passed on wherever possible to clients in the form of increased charges. However, the degree to which average output prices rose was modest and the lowest recorded by the survey since mid-2023.

A lack of incoming new work placed with manufacturers ensured they could comfortably keep on top of overall workloads in February. Latest data showed that backlogs of work declined for a nineteenth successive month, though modestly and to the slowest degree for a year. Extra capacity helped firms to clear work outstanding. Employment growth was registered for the first time in three months (albeit marginal). Staff were hired in part due to positive output expectations, although these were a little lower when compared to the start of the year. Firms are hopeful that a strengthened economic climate will bolster sales and output over the coming 12 months.

“Canada’s manufacturing PMI moved closer to the crucial break-even 50.0 mark during February amid slower falls in both output and new orders. Although continuing to decline, reflective of some ongoing client hesitancy, rates of contraction were small in the context of recent months and reflect a steady underlying improvement in global market conditions,” said Paul Smith, Economics director at S&P Global Market Intelligence.

He further added, “Moreover, firms expressed their optimism about the future by adding to their staffing levels for the first time in three months. This in part may be the result of relative price stability; although costs continued to rise in February, the net increase was broadly in line with the trend seen over the past half-year or so. Still, margins remain under a little pressure, with factory gate prices continuing to rise only modestly and at a slower pace than costs.”