Report: Canadian manufacturers’ outlook subdued for 2020 amid drop in growth

Canadian manufacturers experienced a setback in December 2019 from their previously reported three months’ recovery in manufacturing growth, according to the latest Manufacturing Purchasing Managers Index (PMI) compiled by research firm IHS Markit.

There was a near stagnation of production volumes and a renewed downturn in order books during the latest survey period.

Manufacturers also indicated more cautious staff hiring strategies and efforts to tighten inventory management, which partly reflected concerns about the near-term business outlook. The latest survey signalled the lowest degree of confidence about year-ahead prospects for production growth since February 2016.

“Weakness in the investment goods category linked to softer capital spending at home and abroad remained a key factor behind the subdued manufacturing trend,” says Tim Moore, economics associate director at IHS Markit, in a statement. “Consumer goods producers once again fared better than elsewhere in the industrial sector, but even this outperforming area reported a growth slowdown at the end of 2019.”

At 50.4 in December, down from 51.4 in the previous month, the headline seasonally adjusted IHS Markit Canada PMI signalled the weakest overall manufacturing performance since August 2019. The latest reading was only fractionally above the 50.0 no-change mark.

Slow expansion due to several factors

Survey respondents noted that subdued demand across the automotive and energy sectors was a factor weighing on manufacturing order books in December. Some firms also commented on the need to initiate discounting strategies to stimulate customer demand.

Export sales also dropped at the end of the year, with manufacturers often citing difficulties winning new work in U.S. markets. On a more positive note, there were a number of reports that demand from China had improved.

Employment levels increased at the weakest pace for four months in December. Softer rises in payroll numbers were partly linked to cost cutting and concerns about the demand outlook. Backlogs of work dropped again at the end of 2019, while manufacturers reported their weakest growth projections for almost four years.

Supply chain pressures persisted during the latest survey period, with lead times from vendors lengthening to the greatest degree since February. A number of manufacturers cited delays with shipments due to rail strikes and a lack of alternative transport capacity, which also contributed to depleted inventories of materials at their plants.