Report: Canada’s manufacturing economy shows positive signs as September PMI rises to 50.4

Canada’s manufacturing economy showed improvement in September. The seasonally adjusted S&P Global Canada Manufacturing Purchasing Managers’ Index (PMI) registered at 50.4, up from 49.5 in August. The PMI edged back above the critical 50.0 no-change mark in September to signal the first improvement in operating conditions since April 2023.

According to S&P Global, the PMI was supported by a slight rise in new orders, the first in nearly a year and a half. Growth was reported to be reflective of an uplift in market demand and the release of new product lines. However, there were still many reports that underlying demand conditions remained subdued, especially from foreign clients. Indeed, new export orders declined again in September, and to a greater extent than in August. The latest data marked the thirteenth successive month in which a fall in new export work has been registered.

Supported by marginal gains in new orders and employment, operating conditions in Canada’s manufacturing economy strengthened during September. Confidence in the outlook also improved and output showed signs of stabilizing. Amid reports that market demand conditions remained subdued overall, however, purchasing activity fell slightly. On the price front, input cost inflation accelerated to its highest level for nearly a year and a half. Output charges increased only modestly, however.

Paul Smith, Economics director at S&P Global Market Intelligence, noted, “The latest PMI data provided some encouraging signs for the health of the manufacturing economy, with new orders, employment and confidence in the outlook all improving since August. Panellists pointed to slightly better market demand at home as a factor underpinning growth, which served to offset a further deterioration in foreign sales.”

Production levels were only fractionally lower in September, with the Output Index rising to a seven-month high and indicating a near-stabilisation. Output was weighed down to some degree by efforts to meet sales directly from stock wherever possible. September’s survey showed that inventories of finished goods declined for the first time in five months.

Manufacturers also remained reticent to buy new inputs as evidenced by a drop in purchasing activity for the twenty-sixth successive month. Inventories of inputs were instead utilized, as signalled by a decline in stocks of purchases for the second time in the past three survey periods. A lengthening of delivery times also encouraged stock depletion. Firms continued to report bottlenecks on transportation routes, especially those involving sea freight.

Average input prices meanwhile rose again in September. The rate of inflation picked up, reaching its highest level since April 2023 as a wide range of goods were reported to have increased. However, with market conditions still subdued, manufacturers had limited pricing power to pass on these higher input costs to clients. Overall, output charges rose only modestly and at a noticeably slower degree than in August.

Confidence in the outlook picked up since August, reaching its highest level since May. There are hopes of an improvement of market conditions in the months ahead, with the upcoming US election results forecast to provide some much-needed geo-political stability. Lower interest rates should also help to stimulate growth. Positive projections for the future helped to explain why firms took on extra staff in September. Employment overall increased for the second time in the past three months, albeit only marginally, and helped firms to comfortably keep on top of their overall workloads during September.

“Indeed, global demand remains subdued, in part linked to geopolitical uncertainties and this continues to bear down on production and buying activity. Firms are therefore looking towards the forthcoming US elections as an opportunity to see some much-needed stability, whilst also noting that falling interest rates should help to stimulate growth in the year ahead,” said Smith.