Report: Canadian manufacturing sector contracts in April

The seasonally adjusted S&P Global Canada Manufacturing Purchasing Managers’ IndexTM (PMI) showed a marginal rate of contraction in April, registering at 49.4. Signalling another deterioration in operating conditions, the number was slightly down from March’s 49.8 and at a three-month low.

Commenting on the latest survey results, Paul Smith, Economics director at S&P Global Market Intelligence said, “April’s survey data revealed another relatively subdued performance of Canada’s manufacturing sector, with both output and new orders both falling since March – and perhaps most disappointedly at slightly faster rates. This led firms to again cut their buying activity, and focus on the utilisation of existing inventory, which several panellists noted remain too high.”

The performance of Canada’s manufacturing economy continued to worsen in April as output and new orders both fell again. Firms cut their purchasing activity in response and sought to use inventories instead. However, efforts to keep on top of workloads led to some marginal employment growth as manufacturers retained some confidence in the outlook. Price indices both shifted upwards in April.

Output volumes declined during in April for a ninth successive month as lower sales again led firms to reduce their production levels. New orders fell for a fourteenth successive month. Although modest, the decline was the steepest since January amid reports that high prices and soft market demand were weighing on sales. Weak underlying global demand was also reported to have led to a reduction in new export orders during April, extending the current downturn to eight months. The rate of contraction was also marked and the steepest since January.

Manufacturers were understandably reticent when it came to input buying, instead signalling a continued preference to utilise existing inventory wherever possible. Overall, purchasing activity declined for a twenty-first month in a row, though only slightly. Meanwhile, stocks fell again but only modestly and to the weakest degree since January.

In contrast, firms took on additional staff for a third month in a row. The marginal increase in employment reflected efforts to keep on top of workloads, and firms were broadly successful in this regard as backlogs of work declined again. It was the twenty-first successive month in which backlogs have fallen, with the latest reduction marked.

Meanwhile, the time taken for inputs to arrive at Canadian manufacturers lengthened in April for a fourth month in a row. The modest worsening of delivery performance reflected stock shortages at suppliers and ongoing logistical challenges, especially on shipping routes.

Suppliers were also reported to have raised their prices, and this helped to explain another round of input cost inflation in April. Overall, it was the eleventh successive month that an increase in input prices has been registered, and inflation in April was the highest recorded by the survey since last November. Manufacturers responded by increasing their own charges again, in line with a trend that now extends to nearly four years. The rate of inflation was however modest amid reports that competitive market pressures had limited pricing power.

Finally, manufacturers retained confidence in the outlook, and typically expect to see output rise from present levels in the coming 12 months. Sales volumes are forecast to rise amid hopes of a pickup in demand. However, sentiment remains below trend despite improving to a three-month high. There are concerns amongst the survey panel that high interest rates will continue to weigh on market activity.

“Inflation rates are also frustratingly sticky, with supply-side delays noted as a factor pushing up input costs. However, manufacturers’ pricing power is being limited by market competition and subdued demand. Firms are subsequently looking to the Bank of Canada to ease interest rates soon given elevated borrowing costs remain a key factor weighing on the outlook,” noted Smith.