Report: Tariff fears fuel growth in Canada’s manufacturing sector, PMI up in December

Canada’s manufacturing sector continued to expand at a solid pace in December. The seasonally adjusted S&P Global Canada Manufacturing Purchasing Managers’ Index (PMI) remained above the crucial 50.0 no-change mark in December, edging up to 52.2. Up from 52.0 in November and just below its long-run average of 52.4, the PMI signals the growth of the sector for a fourth successive month.

Commenting on the latest survey results, Paul Smith, Economics Director at S&P Global Market Intelligence said, “Canada’s manufacturing sector enjoyed a relatively positive end to 2024, with overall growth ticking up to its best level in nearly two years. Panellists reported a general uplift in demand and hinted at some sales growth to US clients given the expectation that President-elect Trump will impose tariffs on Canadian goods in 2025 (although overall exports in December were broadly unchanged). Panellists are forecasting a near-term boost to sales ahead of these possible tariff changes, which helped bolster production expectations. However, the shape and extent of these tariffs remains unknown and led to considerable uncertainty amongst firms when assessing the outlook.”

Growth was supported by concurrent gains in output and new orders, while employment also continued to rise. Although the survey provided some evidence of firmer demand from US clients ahead of expected tariffs in 2025, overall exports were little changed. Postal and port strikes, meanwhile, led to a worsening deterioration in vendor performance and a survey-record rise in stocks of finished goods.

Concurrent rises in output and new orders supported the PMI in December. Growth rates were again solid, with firms noting a general uplift in demand. In some instances, panellists reported better sales to US clients in line with inventory accumulation ahead of the expected tariff imposition on Canadian goods by the US in 2025. A weaker Canadian dollar also helped to support sales. However, export demand overall remained underwhelming, according to several panellists, and foreign sales ended fractionally lower in December.

Manufacturers remained suitably encouraged by production and new order trends to raise their purchasing activity (albeit marginally) for the first time since July 2022. Input inventories rose marginally as a result, but increased demand for goods placed some pressure on vendors. Average lead times deteriorated to the greatest degree since August amid reports that postal and port strikes were adding stress to internal supply chains. These factors also meant firms struggled to ship their own products and helped explain why inventories of finished goods rose in December at a survey-record pace.

Firms sought to recruit additional workers, especially in skilled roles, during December. This meant that employment rose for a fourth successive month overall, though growth was marginal and the softest since September. Extra capacity helped firms to keep on top of overall workloads, with backlogs of work falling slightly over the month.

On the cost front, input price inflation accelerated during December, reaching its highest level since April 2023. Panellists commented that a range of goods had risen in cost, with vendors willing to increase their charges given stronger demand. A weaker Canadian dollar increased the cost of imported goods, according to panellists. In response, average output charges rose again. Although solid, output price inflation was down slightly on November’s three-month high.

Confidence in the outlook was positive in December, with confidence overall reaching its highest level in nearly a year-and-a-half. Firms are forecasting an increase in US exports ahead of expected tariff imposition in 2025. However, the timing and scope of these tariffs meant the outlook was unusually uncertain for manufacturers at the end of 2024.

“Finally, bottlenecks in domestic supply chains remained prevalent in December, with various port and postal strikes leading to considerable challenges for inbound production inputs and outbound shipping from manufacturers’ warehouses. The result was a noticeable lengthening of vendor delivery times and a record increase in inventories of finished goods in December,” said Smith.