Manufacturing downturn moderates in January 2016: RBC PMI

Monday February 01, 2016
Written by Manufacturing AUTOMATION
Feb. 1, 2016 - The RBC Canadian Manufacturing Purchasing Managers’ Index (RBC PMI) moved closer to stabilization in January 2016, following a survey-record low at the end of 2015. Measured overall, business conditions deteriorated to the lowest degree for five months, reflecting softer falls in output, new business and employment.

The main bright spot was a solid rebound in export sales, which helped offset some of the downturn in domestic demand, according the January index. A number of manufacturers noted that the weaker loonie had contributed to rising new business wins from U.S. clients. At the same time, exchange rate depreciation also led to a strong and accelerated increase in average cost burdens, with input price inflation hitting an 18-month high in January.          

The monthly survey, conducted in association with Markit, a financial information services company and the Supply Chain Management Association (SCMA), offers an early indicator of trends in the Canadian manufacturing sector.

At 49.3 in January, the seasonally adjusted PMI recovered from December’s survey-record low of 47.5, but remained below the neutral 50.0 threshold for the sixth consecutive month. The current period of decline is the longest since the survey began in late-2010, although the latest reading was the highest since last August.   

Key findings from the January survey include:

• Manufacturing PMI picks up from December's survey-record low;
• Slower declines in output, new orders and employment; and
• New export work increases at strongest pace since November 2014.

“While Canadian business conditions continued to deteriorate in January, we saw signs of stabilization in the manufacturing industry supported by strong export sales alongside a pick up in the US economy and a weakening Canadian dollar,” said Craig Wright, senior vice-president and chief economist, RBC. “Ontario manufacturing continues to be the bright spot, while the sharp drop in performance in Alberta and B.C. suggests that heightened economic uncertainty and ongoing declines in capital spending are weighing on the economy.”

January data signalled a slower reduction in output volumes than that recorded in December. Moreover, the rate of decline was only marginal and the least marked for five months. Anecdotal evidence suggested that improving export demand had supported production levels in January. At the same time, heightened economic uncertainty and ongoing declines in capital spending by energy sector clients was cited as a brake on manufacturing output.

Regional highlights include:

• Ontario saw another improvement in manufacturing conditions, while Alberta and B.C. continued to record the fastest decline in performance.
• New export sales increased in three of the four monitored regions, with Alberta and B.C. the exception.
• Strong rises in average cost burdens were registered across all areas monitored by the survey in January.

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