Report: Canadian manufacturing holds strong output growth in May

The Canadian manufacturing sector continued its rebound in May, reports IHS Markit Canada in its latest market survey.

The headline seasonally adjusted Manufacturing Purchasing Managers’ Index (PMI), which surveys about 400 manufacturers, came in at 57 in May.

This was slightly down from 57.2 in April, marking the fifth-strongest growth in operating conditions in the survey to date.

“May PMI data reveals another robust expansion across Canada’s manufacturing sector with solid upticks in output and new orders registered,” says Shreeya Patel, economist at IHS Markit, in a statement.

“Policymakers will particularly welcome the stronger uplift in workforce numbers after the country saw the unemployment rate climb post-pandemic. Moreover, a sustained increase in backlogs suggests staffing in the manufacturing sector will continue to grow over the coming months.”

Manufacturers reported solid growth in production volumes, although the rate of expansion evened out for the second consecutive month. Virus-related restrictions persisted in key regions, although some sectors were able to resume their operations, according to survey respondents.

They also widely commented on greater demand from both domestic and export markets (mainly the U.S.).

Stretched operating capacity reflected insufficient workforce numbers and further supplier delivery delays. In a bid to reduce backlogs, firms added to their head counts at the strongest rate since December 2020, which led to a softer rise in outstanding business. The overall rate of backlog accumulation was still solid, however.

“Meanwhile, vendor performance continued to deteriorate in May,” says Patel. “Lead times lengthened at the third-most marked rate in the near 11-year history of the survey, which has had knock-on effects on prices and input availability. Raw material and transportation expenses soared, with firms rushing to adding to their stockpiles in a bid to offset future delays. A record increase in output prices suggests a large proportion of the burden was passed on to clients, but manufacturers will find the building inflationary pressures unsustainable.”

Increasing capacity pressures and limited material availability made it difficult for firms to increase their post-production holdings. Stocks of finished goods were depleted for a second month in a row, with the latest fall solid.

Manufacturers surveyed remained positive overall, reflecting hopes that the lifting of pandemic restrictions will result in a strong rebound.