Manufacturing AUTOMATION

Report: Downturn continues in Canadian manufacturing sector in May

June 3, 2024
By Manufacturing AUTOMATION/ S&P Global Canada Manufacturing

The seasonally adjusted S&P Global Canada Manufacturing Purchasing Managers’ Index (PMI) recorded 49.3 in May, compared to 49.4 in April. This extended the current downturn in manufacturing operating conditions to 13 months.

Output and new orders both continued to fall and at faster rates, whilst firms cut their buying activity given sufficient stock at their plants. More positive however was a rise in employment and a strengthening of confidence to a ten-month high. Prices data showed another solid increase in input costs but the slowest increase in output charges for nearly four years.

“Canada’s manufacturing economy remained in a mild downturn during May. Output and new orders continue to fall, and perhaps more worryingly, to stronger degrees than in April. Firms continue to report subdued market demand, characterised by uncertainty and a general unwillingness to commit to new business. Moreover, with sufficient stock noted at their plants, manufacturers saw little need to raise their own buying activity,” said Paul Smith, Economics Director at S&P Global Market Intelligence.

The continued weakness of the headline index principally reflected ongoing falls in both output and new orders. Although modest, rates of contraction picked up since April. Production has now fallen for ten months in a row, and May’s drop was the steepest of the year so far. For new orders, the decline was the sharpest in four months. Firms commented on an uncertain economic and political environment, with sales down from both domestic and international clients. New export orders fell for a ninth successive month amid reports of reduced demand from the U.S.

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Lower production and new order requirements inevitably weighed on purchasing activity in May. For the twenty-second month running, input buying was cut. Some firms noted sufficient stock at their plants and were even able to expand their inventory levels in May: there were marginal rises in both input and output inventories in May. For inputs, it was the first increase since July 2022, whilst growth in stocks of finished goods was the first since January.

Despite subdued trends in production and new orders, alongside evidence of sufficient plant capacity – backlogs of work fell noticeably in May – manufacturing employment rose again. Panellists in some instances signalled growth projections for the coming year, with pipeline new business said to be healthy in several cases. Amid expectations of a more stable economic environment, characterized by reduced interest rates and lower inflation, confidence in the future picked up to its highest for ten months.

On the price front, there was another round of rising input costs in May. The latest data marked the twelfth month running that a rise in input prices has been recorded, with the rate of inflation again solid despite slipping to its lowest level since January. Companies reported that vendors were happy to raise their charges, reflective in part of high global demand. Supply chain delays were also reported as an inflationary factor. Delays in the delivery of inputs related to shipping challenges in the Suez and Panama Canals were noted and reflected in a marginal worsening of supplier performance in May.

Competitive pressures served to limit the degree to which firms could pass on their costs to clients. Although rising again, and thereby extending the current period of increasing charges to 46 months, inflation was fractional and the lowest in the current sequence.

“Supply chain frictions were again evident and continue to provide a prop to wider inflationary pressures, according to panellists. Input costs indeed rose at a marked pace, but more reassuringly to a degree that remains well below average. With competitive pressures and weak demand, output charges rose only fractionally and point to a more stable inflation environment. This may provide some reassurance to policymakers as they look to finally embark on their widely expected period of monetary policy loosening,” added Smith.


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