Report: Canadian manufacturing maintains strong growth in November as supply constraints continue

Canadian manufacturing continued with its robust expansion in November, according to the latest results of IHS Markit’s purchasing managers survey.

Output growth accelerated while new orders rose at a strong pace. Firms continued order in advance to protect against shortages. However, transportation bottlenecks led to another marked lengthening in lead times. Backlogs of work rose at a record pace. The rise in demand and high transportation fares has led to sharp cost increases. The favourable demand environment allowed companies to partly pass on higher expenses, however.

The headline seasonally adjusted IHS Markit Canada Manufacturing Purchasing Managers’ Index (PMI) registered at 57.2 in November, down slightly from 57.7 in October. Growth has been seen in each month since July 2020, with the latest expansion among the strongest in over 11 years of data collection.

“The penultimate month of 2021 continued to indicate strong growth in Canada’s manufacturing sector. Operating conditions have improved in each of the last 17 months, with the latest expansion among the strongest in the series history. Production volumes increased strongly while sustained increases in domestic and international demand contributed to the sector’s strong performance,” said Shreeya Patel, Economist at IHS Markit.

Manufacturers recorded the fastest rise in production levels for three months, which was linked to increased workloads. The overall rate of expansion was strong, and in line with the average seen for 2021 so far. Meanwhile, new work expanded solidly, but at a softer pace during November. Survey respondents widely commented on improved demand and higher customer numbers. There were also reports that companies broadened their product offerings. At the same time, greater demand from US and Asian markets supported a tenth monthly uptick in exports.

There were further signs that manufacturing companies struggled to keep up with workloads during the month. Unfinished business increased at a survey-record pace which was largely linked to stretched supply chains and component shortages.

Average lead times from vendors lengthened to the second greatest extent since the survey began in October 2010. Anecdotal evidence suggested that transportation delays, material scarcity, port congestion and virus-related restrictions had led to worsening vendor performance. In response, manufacturers sought to build their safety stocks during November, with the latest rise in preproduction inventories the joint second-steepest in the series history.

High demand for raw materials, along with higher transportation, fuel and energy costs led to a marked rate of input cost inflation. Survey respondents commented on difficulties sourcing semiconductor chips and higher prices for steel, rubber, aluminium and electrical components. Firms opted to pass on part of the burden to customers by raising their selling charges. The rate of output price inflation moderated but was the fourth-steepest in the series history.

With prices elevated and capacity pressures persisting, stocks of finished goods were depleted. The decline was only fractional, however.

Manufacturers were upbeat about their growth prospects for the next 12 months. The degree of positivity moderated to the lowest since July, but was still above the long-run series average.

“Overall, Canada’s manufacturing sector performed well in November. Growth has certainly been hindered by transportation bottlenecks, material scarcity and intense cost pressures, but firms remain confident that such issues will subside in 2022,” added Patel.