Canada's manufacturing conditions deteriorated in March: RBC

Tuesday April 02, 2013
Written by Manufacturing AUTOMATION
The March RBC Canadian Manufacturing Purchasing Managers' Index (RBC PMI) signalled the first deterioration in manufacturing business conditions since data collection began in October 2010, with monthly declines reported for both output and new orders. The headline RBC PMI—a composite indicator designed to provide a single-figure snapshot of the health of the manufacturing sector—fell below the 50.0 no-change mark that separates growth from contraction in March. This was the first sub-50 reading in the two-and-a-half year survey history. At 49.3, down from 51.7 in February, the RBC PMI was consistent with a marginal rate of contraction in March. The RBC PMI found that both the levels of output and new orders were lower in March compared with one month previously. A number of firms linked this to weak client demand. The reduced workloads also contributed to a slower rate of job creation. Meanwhile, on the price front, the rate of input cost inflation was strong and faster than in February, but remained slower than the series average. "The deterioration in the Canadian manufacturing measure is surprising in the face of improving growth in both the U.S. and various emerging economies. However, uncertainty about resolving fiscal imbalances in the U.S. —with sequestration going ahead March 1—and in the Euro-area may have weighed on sentiment," said Craig Wright, senior vice-president and chief economist, RBC. "This weak spot should be short-lived, however, as we expect that global demand for Canadian exports will recover, providing a welcome boost for domestic manufacturers." The headline RBC PMI reflects changes in output, new orders, employment, inventories, prices and supplier delivery times. Key findings from the March survey include: • RBC PMI falls below the 50.0 no-change mark that separates growth from contraction;• Both output and new orders fall modestly in March; and• Employment growth slows. Canadian manufacturers received a lower volume of new orders in March. Firms generally linked the reduction to weak client demand, both at home and abroad, with new export work also having fallen since February. Although moderate, the rate of decline in total new orders was the sharpest in the 30-month series history. Reflective of lower new work intakes, manufacturing firms reduced their output in the latest survey period. Production has fallen in three out of the past five months, with the latest reduction moderate. Concurrently, stocks of finished goods were depleted, albeit only marginally, and backlogs of work fell further and at a faster rate than one month previously. Following no change in purchasing volumes in February, the quantity of inputs bought by manufacturers fell in March. However, the rate of decline was only slight. Input inventories, meanwhile, fell for the fifth successive month, partly reflecting leaner stock holding requirements. Suppliers' delivery times lengthened further in March. Anecdotal evidence suggested that vendors were working with lower inventories, with some suppliers also experiencing transportation problems. Overall, the increase in lead times was modest, but to a lesser extent than in February. Manufacturing employment in Canada continued to increase in March. However, the rate of growth eased since hitting a four-month high in February. Approximately 14 per cent of firms hired additional staff in the latest survey period, while 10 per cent reduced their workforces. Input costs faced by manufacturers rose further in March, with higher raw material prices and unfavourable exchange rates contributing to the latest increase. Overall, the rate of input price inflation was strong and faster than in February. Meanwhile, output charges also increased over the month, with the latest rise the greatest for almost a year. Regional highlights include: • Three regions saw a deterioration in manufacturing business conditions in March. The rates of contraction were moderate in both Alberta and British Columbia and Ontario, but marginal in Quebec.• Production fell at the sharpest rate in Alberta and British Columbia.• The strongest rate of contraction in new orders was recorded in Ontario.Job losses were reported in Alberta and British Columbia, but employment growth was recorded elsewhere.

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