Manufacturing AUTOMATION

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Report: Canadian manufacturing ends 2022 on a subdued note


January 3, 2023  by Manufacturing AUTOMATION/ S&P Global Canada Manufacturing

Seasonally adjusted S&P Global Canada Manufacturing Purchasing Managers’ Index (PMI) for December registered at 49.2. It was down from 49.6 in November and below the 50 no-change mark for the fifth successive month. This marked the longest sequence of decline since a seven-month run from August 2015 to February 2016.

The Canadian manufacturing economy remained in mild contraction territory during December. There were further falls in output, new orders and purchasing activity during this period. Inventories were drawn down as firms sought to realign stocks with current production requirements. Delivery delays continued and contributed to inflationary pressures which strengthened over the month.

On the positive side, there was further employment growth even though the latest gains were relatively marginal and slower than in November. Confidence in the future changed little, remaining at a below-par level.

“The Canadian manufacturing economy turned in another relatively subdued performance as 2022 closed, with both production and order books falling since the previous month. Firms reported again that weak market demand reflected both ongoing uncertainty and the negative impact of high inflation,” said Paul Smith, economics director at S&P Global Market Intelligence. “Indeed, cost pressures turned slightly upward during December, arresting the recent easing trend. With supply constraints persisting, price stickiness remains a concern for companies, who remain on average subdued and concerned about the future.”

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Weakness centred primarily on production and new orders. Both fell for a sixth month in succession, with output down to the greatest degree since August. Conversely, new orders declined at the weakest pace since July, though the rate of contraction was again solid. Firms widely commented that market demand was subdued as the corrosive effects on sales of inflation and uncertainty persisted.

On the inflation front, prices paid for inputs continued to increase at an elevated rate and one that was faster than November’s two-year low. Similarly, firms chose to pass through a noticeable proportion of these higher costs to clients via a rise in their own charges, which also increased at a stronger pace in December. Panellists continued to attribute rising prices to elevated transportation costs, and generally tight supply conditions. Although not worsening to the same degree seen earlier in the year, average lead times for the delivery of inputs again deteriorated noticeably.

This was despite another solid reduction in purchasing activity as firms reacted to weak trends in output and new orders by lowering their buying of inputs. This was also linked by panellists to ongoing efforts in reducing costs related to the storing of excess inventory. Both stocks of preproduction and post-production goods were reported to be lower during December. Against the backdrop of underwhelming performances in both production and new orders, manufacturers perhaps somewhat surprisingly added to their staffing levels (albeit slightly) during December.

Growth was linked in part to longheld vacancies at plants reflect of general difficulties in recruiting staff. Moreover, firms were also on average upbeat about the future, with confidence in the outlook remaining in positive territory amid hopes of a pick-up in sales, demand, and the broader economy in the coming months. However, worries persist about the negative impact that inflation could have on demand, whilst some firms signal fears of recession. Subsequently, overall sentiment remained below its historical average heading into 2023.


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