Canadian manufacturing sector in expansion mode: RBC

Tuesday March 04, 2014
Written by Manufacturing AUTOMATION
The Canadian manufacturing sector remained in expansion mode in February, with output, new orders and employment all rising during the month, according to the RBC Canadian Manufacturing Purchasing Managers’ Index (RBC PMI). However, the index also revealed that the latest increase in new work was the slowest since August 2013.

Adjusted for seasonal influences, the headline RBC PMI registered 52.9 during February, up slightly from a nine-month low of 51.7 in January. The index has now posted above the neutral 50.0 value for 11 successive months, and the latest reading pointed to a solid improvement in overall business conditions.

“Canada’s manufacturing sector grew at a notably stronger pace in February relative to January,” said Craig Wright, senior vice-president and chief economist, RBC. “As we move through 2014, we’ll see a strengthening in exports relative to imports, with trade contributing more than it has to Canada’s growth over the past decade. This should encourage a rebound in investment activity, particularly amongst manufacturers.”

The headline RBC PMI reflects changes in output, new orders, employment, inventories, prices and supplier delivery times. Key findings from the February survey include:
• Production levels increased for the 10th successive month;
• Weaker new business growth partly reflected softer export order expansion; and
• Input cost inflation was at its strongest level since May 2011.

A stronger overall performance by the Canadian manufacturing sector in February partly reflected an acceleration of output growth from the five-month low during January. Although new business volumes increased for the 11th successive month, the latest rise was the slowest since last August. New orders from abroad increased only marginally, with February data highlighting the weakest trend in export sales since March 2013.

Manufacturers indicated a return to jobs growth in February, following a slight reduction in staffing levels during the previous month. However, the pace of employment growth was only marginal and a number of firms noted that weaker new business gains had led to cautious staff hiring policies. Meanwhile, backlogs of work rose only slightly, albeit for the first time in three months.

In line with greater production requirements, manufacturers signalled a moderate rise in their levels of input buying during February. Despite the relatively subdued trend for purchasing activity, the latest data signalled a steep deterioration in supplier performance. Average lead-times from vendors lengthened to the greatest degree since September 2011, which survey respondents widely linked to adverse weather conditions (especially those receiving deliveries from suppliers in the U.S.).

February data indicated that manufacturers remained cautious about their stock levels, largely due to weaker new business growth. As a result, post-production inventories increased at the slowest pace in the current four-month period of expansion, while stocks of inputs dropped for the third month running.

Meanwhile, manufacturers signalled a sharp and accelerated pace of input cost inflation during February, which led to a robust rise in factory gate charges. The latest increase in average input prices was the fastest since May 2011.

Survey respondents commented on higher underlying raw material costs, alongside inflationary pressures from exchange rate movements against the U.S. dollar.

Output growth was recorded in all four regions and was again strongest in Ontario. Only Alberta and British Columbia recorded faster new business gains in February. Meanwhile, Quebec registered the strongest rise in new export orders, and Alberta and British Columbia remained the best performing region in terms of job creation.

“Solid output growth and a return to net job creation were the main positive findings in February’s survey,” said Cheryl Paradowski, president and CEO, Supply Chain Management Association. “However, a much slower rate of new export order growth weighed on the Canadian manufacturing sector. Meanwhile, there were reports that recent currency depreciation had helped push up input cost inflation to its fastest for almost three years.”

The RBC PMI is a monthly survey, conducted in association with Markit, a global financial information services company, and the Supply Chain Management Association. It offers a comprehensive and early indicator of trends in the Canadian manufacturing sector. The report is available at www.rbc.com/newsroom/pmi.

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