Report: Canadian manufacturing moves closer to stablilization in March

The seasonally adjusted S&P Global Canada Manufacturing Purchasing Managers’ Index (PMI) registered at 49.8 in March, up from 49.7 in the previous month and at an 11-month high. While it remained below the crucial 50.0 no-change mark for an eleventh successive month to signal another worsening of operating conditions, the PMI signalled only a fractional deterioration.

Operating conditions remained subdued as output and new orders both continued to fall, albeit at marginal rates. Firms continued to focus on destocking, whilst reports of supply chain delays led to a firmer increase in input prices. However, confidence in the 12-month outlook improved, leading firms to add to their staffing levels for a second successive month.

Concurrent declines in both output and new orders were signalled, although rates of contraction were marginal. In the case of new work, the fall was the least pronounced in 13 months. Nonetheless, firms continued to report that market demand was subdued, and characterized by client hesitancy against a backdrop of high prices and steep borrowing costs. Sales to key international markets (like the U.S.) were also reported to be lower, evidenced by a seventh successive monthly decline in new export orders during March.

Commenting on the latest survey results, Paul Smith, Economics Director at S&P Global Market Intelligence said, “Canada’s manufacturing economy crawled closer to stabilization in March, with output and new orders recording only marginal falls. However, firms continued to report that market demand remained subdued, with clients hesitant to commit to new work. Manufacturers subsequently remain focused on destocking as they seek to better align their production and inventory requirements.”

Subdued trends in production and new orders spilled over into buying and inventory decision-making. Rather than buy in new inputs, firms instead chose to focus on destocking as they sought to better align stock and output requirements. Overall, stocks of purchases declined at the fastest pace in the year-to-date. Firms also sought to meet orders directly out of warehouse inventories, the net result being the sharpest cut in stock for six months.

Production delays were also cited as a factor pushing down finished goods inventories, which in part reflected the ongoing worsening of supplier performance in March.

Average lead times for the delivery of inputs lengthened for a third successive month and to the greatest degree since last October. These supply-side delays added to some upward pressure on prices. According to the latest data, average input costs rose again, and to the greatest extent since last November. However, the subdued marketplace prevented firms from raising their own charges to a steeper degree. On the contrary, output prices in March rose only modestly and to the weakest degree since June 2023.

Looking ahead, firms remained confident that output will be higher than present levels in 12 months’ time. Confidence in the future picked up since February, though did remain below trend. Firms are hopeful that sales volumes will rise in line with better economic conditions and the start up of new projects. However, high interest rates remain a concern for many companies, and are seen as a factor that could depress growth in the coming year.

Nonetheless, positive projections for output meant firms added to their staffing levels for a second month in a row. Although only marginal, growth of labour capacity helped firms to comfortably keep on top of their workloads. Levels of work outstanding fell in March for a twentieth successive month.

“A pickup in input price inflation revealed by the latest survey is a little concerning, although a slow and weaker rate of charge inflation adds to a general feeling that manufacturers continue to operate in a subdued market environment. With interest rates still restrictive, confidence in the outlook equally remains below trend, though firms are nonetheless typically expecting production growth to be recorded in the year ahead,” said Smith.