Report: August PMI signals slow stabilization in Canada’s manufacturing industry despite ongoing challenges

Canada’s manufacturing industry moved closer towards stabilization in August as the seasonally adjusted S&P Global Canada Manufacturing Purchasing Managers’ Index (PMI) registered at 49.5. Although below the critical 50.0 no-change mark for a sixteenth successive month, it was up from 47.8 in July, signalling only a marginal deterioration in operating conditions that was the weakest since March.

Operating conditions in Canada’s manufacturing economy continued to deteriorate during August, albeit only marginally and to the softest degree since March. This reflected slower falls in both output and new orders. However, there was a return to modest job shedding following marginal growth in July.

Shipping delays, especially related to ocean freight, led to another deterioration in vendor performance. On the price front, input cost inflation accelerated to its sharpest since April 2023, helping to drive the steepest increase in output charges for nine months.

August’s survey revealed weaker contractions in both output and new orders. Panellists nonetheless continued to report a subdued economic environment, both at home and abroad. Clients were said to be hesitant to commit to new work linked to some uncertainty in the geopolitical and global economic outlooks. New export orders declined for a twelfth successive month, although the rate of contraction also softened noticeably to its slowest since May.

Commenting on the latest survey results, Paul Smith, Economics director at S&P Global Market Intelligence said, “Although the performance of Canada’s manufacturing economy continues to disappoint, slower falls in output and new orders point to a relatively better performance in July than in August, thereby providing some hope of the sector heading towards stabilization after a prolonged downturn.”

The lack of incoming new work and reduced production requirements meant firms cut their staffing levels for the second time in the past three months. The decline was also the steepest in 2024 so far, with reports of the nonreplacement of leavers and some concerns about the economic outlook leaving firms reticent to hire new workers. Although confidence in the outlook remained positive, linked in part to projections of a better economic environment and a rise in new work, sentiment was again below trend in August. Some firms remained concerned over the impact on demand of elevated prices and high interest rates.

Price pressures intensified during August. Input price inflation accelerated to its steepest level since April 2023, linked to higher prices for a variety of inputs (plastics were especially noted). There were also reports that unfavourable exchange rate movements and high shipping costs had raised overall input prices. In response, manufacturers raised their own charges to the greatest degree since last November.

Meanwhile, firms also reported ongoing sea freight delays. With low inventories at suppliers noted as well, firms signalled that average lead times deteriorated to the greatest degree for 18 months. Firms sought to mitigate these risks by bolstering input stocks wherever possible. Overall, input inventories rose modestly, but nonetheless at the strongest pace since May 2022. That was despite purchasing activity being cut again in August, extending the current downturn to just over two years.

“Reduced employment and cuts in purchasing activity point to continued uncertainty amongst firms, and this was reflected in their assessment of the outlook, with confidence remaining below its trend level. Firms continue to worry about price levels, and in this regard the latest data on inflation remained concerning. Cost pressures picked up to their highest in nearly a year-and-a-half year, whilst output charge inflation accelerated noticeably,” noted Smith.