Report: Canada’s manufacturing output rises sharply in October, PMI signals positive outlook

Canada’s manufacturing economy grew at a faster rate in October. The seasonally adjusted S&P Global Canada Manufacturing Purchasing Managers’ Index (PMI) signalled a second successive monthly improvement in operating conditions during the month. The headline PMI improved to 51.1, up from 50.4 in September and a 20-month high.

S&P Global notes that amid reports of steadily improving market demand, new business rose marginally, and firms continued to take on additional workers. Confidence in the outlook was also positive, though firms remained cautious when it came to buying activity, instead preferring to use existing input stocks wherever possible. Inflationary pressures weakened, with costs rising at a slower pace and output charges only marginally higher in October.

Underpinning growth in October was a solid rise in manufacturing production. It was the first time since July 2023 that output has increased, and the uplift was the best registered by the survey in over a year and a half. Some panellists reported that market demand had improved, leading to a net increase in total new orders. Growth was however marginal and centred on the domestic market: new export business continued to fall during October, extending the current downturn to 14 months.

With output rising at a noticeably faster pace than new work manufacturers added to their stocks of finished goods. Growth reflected a mixture of positive expectations for orders, but also some delays in shipping from warehouses. It was the fifth time in the past six months that a rise in inventories has been recorded.

Meanwhile, backlogs of work outstanding declined for a twenty-seventh successive month. This primarily reflected higher output, but also an expansion of productive capacity. Workforce numbers rose in October for the second month in a row, with growth the best since April 2023. Extra workers were also hired in anticipation of increased production in the coming months. Although confidence was a little down since September it remained comfortably above trend. An improvement in sales and market demand, supported by the release of new products, should underpin growth in the year ahead.

On the price front, input cost inflation softened during October, though was still marked amid reports of higher prices for metals and related products. Vendor performance also deteriorated again marginally. Ocean freight delays were commonly reported, linked to a mixture of poor weather and disruption in the Panama and Suez canals.

Finally, output charges were raised in October, but only marginally and to the slowest extent for five months. Whilst firms sought to pass on higher input costs to clients, competitive market pressures tended to limit pricing power.

“October marked a relatively positive month for Canada’s manufacturing economy, with solid increases in output and employment both stand out statistics from the latest survey data. Firms bolstered their production in anticipation of growth in the months ahead, with warehouse inventories increasing marginally ahead of expected order gains,” said Paul Smith, Economics director at S&P Global Market Intelligence. “However, firms retained a degree of caution, with buying activity cut again as underlying demand remains soft – despite showing signs of stabilizing. This highlights that the sector has some way to go before getting onto a firmer growth trajectory. With latest data also pointing to a dissipation of inflationary pressures, the survey overall provides further support to the Bank of Canada’s current focus on moving quickly towards a more neutral monetary policy stance.”