Report: Canadian manufacturing ends 2023 on a low, survey reveals

Downturn in the Canadian manufacturing industry continued till the end of 2023, contracting further from November. The seasonally adjusted S&P Global Canada Manufacturing Purchasing Managers’ Index (PMI) registered 45.4 in December, down from 47.7 in November. This was the lowest reading since May 2020. The PMI posted below the crucial 50.0 no-change mark for eight consecutive months, according to the latest S&P Global report.

The downturn intensified during December, with accelerated declines in both output and new orders signalled. There was also a return to job shedding, while confidence in the future remained subdued in the context of the survey history. Prices rose again, despite further evidence of deteriorating demand for inputs and improved supply, the report revealed.

Concurrent and accelerated falls in both output and new orders were signalled during December. The declines were also the steepest since May 2020 and reflected subdued market conditions. Firms commented that high prices were weighing heavily on demand, both at home and abroad. Latest data showed that new export orders declined to the greatest degree for three-and-a-half years, with various conflicts around the world also reported to be negatively impacting global manufacturing demand.

Firms remained reticent when it came to purchasing and employment decisions in December. In both instances, cuts were made. The fall in input buying was especially severe, with firms signalling a strong preference for using existing stocks in production against the backdrop of weak order book trends. The drop in input inventories was the steepest for three-and-a-half years. Similarly, job numbers fell to the greatest degree since June 2020. An unwillingness to replace leavers at a time of deteriorating order books was noted by several panellists. Another factor behind reduced job numbers was the presence of excess capacity, which was highlighted by another steep reduction in backlogs of work.

Despite lower demand and evidence of improving supply – average vendor times improved for the first time in four months during December – companies continued to report higher input prices. The rate of inflation remained marked, though was the lowest for three months. A wide range of goods were reported to have risen in price, with steel commonly said to be up in cost. Firms saw little choice but to raise their own charges, although competitive pressures meant the degree to which output prices increased was slower than November’s nine-month high.

Looking ahead to 2024, firms are on average confident of experiencing a rise in production, states S&P Global. There are hopes that market demand will improve over the coming months but worries over elevated prices and interest rates persist. Overall confidence subsequently remained below trend in December despite rising to a three-month high.

“Canada’s manufacturing economy endured a difficult end to 2023 and with that rounded off a challenging year for the sector overall. The respective PMI posted below the 50.0 no-change mark for the ninth time in 2023, and comfortably registered its worst reading in the post-pandemic period. Accelerated declines in both production and new orders were registered, amid reports that demand for manufactured goods remains subdued. Firms noted that clients remain burdened by high prices, and these continued to rise throughout the supply chain over the month. However, at least rates of inflation eased according to the PMI data, and given the increasingly weak demand environment, are likely to continue to fall in the months ahead. With employment also down quite noticeably, there are also signs of a loosening of the industrial labour market. This development will add to hopes that the Bank of Canada remains firmly on its stated path of restoring price stability in 2024,” shared Paul Smith, Economics director at S&P Global Market Intelligence.