Report: Canadian manufacturing continues growth in July

Canada’s manufacturing sector continued its 13th month of expansion in July, says IHS Markit in its latest survey of purchasing managers.

The headline seasonally adjusted IHS Markit Canada Manufacturing Purchasing Managers’ Index PMI ) registered 56.2 in July, down fractionally from 56.5 in June. The PMI eased for the fourth month in a row, but was still amongst the highest in the series, which began in October 2010.

Quicker increases in output and new orders, spurred by further loosening of COVID-19 restrictions, supported a robust rate of growth in July. Improvements in global economic conditions led to higher sales to international markets, mainly the US and China.

“Firms remain well aware of the potential impacts of rising cases in international economies, by raising their stock levels to cushion against any future supply shocks,” says Shreeya Patel, economist at IHS Markit, in a statement.

“There are still areas which look to threaten short and long-term productivity. A sharp rise in backlogs suggested severe capacity pressures, with comments often linking labour shortages. Delivery delays and material scarcity also made it difficult for firms to keep up with demand. Meanwhile, intense price pressures continued into the second half of the year, though firms have been passing on the higher expenses.

“Nevertheless, manufacturers in Canada expect growth to continue. With the vaccine rollout gaining momentum, and case numbers declining, a busy second half of the year is sure to follow.”

Demand improved during the month, and with a rate of new order growth that was slightly quicker than that in June.

To cater for rising workloads, production rose at a sharp and accelerated pace. Higher staffing and demand levels supported the uptick, according to respondents.

Job creation has now been seen in each month since July 2020, with the rate of growth quickening during the month. That said, the latest uptick was not enough to curb the rise in backlogs.

A sustained period of output and new order growth combined with efforts to limit the risk of future shortages led firms to raise their buying activity in July. Purchases and pre-production inventories rose solidly, although the rates of growth eased in both cases.

Vendor performance deteriorated markedly at the start of the third quarter. Port congestions, virus-related restrictions, and shortages in the supply of materials (particularly metals) were key reasons cited by panellists. That said, the incidence of delays was the smallest since February.

Input prices rose sharply in July amid higher freight, steel, and aluminium costs. The rate of inflation eased marginally from June, but was still amongst the quickest in the series history.

Consequently, firms raised their selling charges, and at the second-quickest rate in the survey history.