Report: Canadian manufacturing remains in contraction territory in November

The seasonally adjusted S&P Global Canada Manufacturing Purchasing Managers’ Index (PMI) recorded 49.6 in November, up from 48.8 in October. This signalled a slower rate of contraction. However, the PMI has now posted below the 50.0 no-change mark for four months in a row, according to the latest S&P Global report.

Canada’s manufacturing economy remained inside contraction territory during November, even though output and new orders fell at slower rates compared to October. Several firms addressed staff shortages at their plants by registering a net increase in employment amid positive growth projections. Underlying conditions remained challenging, with high inflation and worries over recession undermining sales and demand.  This, alongside shipping delays, led to a modest rise in inventories of finished goods.

Another contraction in levels of new orders led to the underwhelming PMI reading, according to the report. Subdued market demand and the negative impact of high inflation led to the decline in new orders for the fifth successive month in November. Foreign sales were also down, as global macroeconomic uncertainties continued to weigh on product sales.

“Against a backdrop of high inflation and ongoing macroeconomic uncertainty in product markets, November’s PMI data signalled that operating conditions in Canada’s manufacturing sector remained challenging. Both output and new orders continued to fall, although perhaps of some comfort is that the degrees of decline were softer than in October,” said Paul Smith, economics director at S&P Global Market Intelligence.

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Manufacturing production fell over the month, although only slightly and to the lowest degree in the current five-month sequence of contraction, mainly due to the negative impact of reduced orders. An increase in staffing levels supported production, with firms seeking to address labour shortages that have hampered sector performance in recent months. Companies made some decent inroads into their backlogs of work, which fell for a fourth month in succession.

Although there was a net rise in employment for the first time in four months, growth was marginal as some firms expressed concern over elevated costs at their plants. November’s survey revealed another sharp rise in overall input prices amid reports that fuel, shipping and general goods shortages continued to underpin elevated cost inflation. However, with metals such as steel reported to be coming down in price, overall input costs rose at their slowest pace for two years. Similarly, output price inflation also softened, moving down to a level close to September’s 22-month low.

Input goods shortages in global product markets reportedly had a negative impact on the ability of vendors to deliver goods to manufacturers in November. The average lead times lengthened and extended the current sequence of below-par performance to well over three years. However, in a sign of loosening supply-chain pressure, the incidence of delays was the weakest since early 2020 and below the long-run survey average. Sourcing transportation for deliveries remains a problem for both manufacturers and suppliers. This was reported to be a factor leading to a modest rise in warehouse stocks in November.

Manufacturers remained on average upbeat about their prospects for the coming year. However, sentiment remained below its historical trend which was linked in many cases to worries over inflation and economic growth. That said, several respondents were confident about a pick-up in the economy over the next 12 months.  They have planned fresh investments and the start of new projects at their plants. Overall, expectations were their highest since August.

“Cost inflation continues to ease as lower prices for several goods slowly make their way down the supply chain, whilst several firms added to their staffing numbers as they sought to address labour shortages at their plants. Confidence in the future has also edged higher, adding to hopes that the current downturn in the sector is passing its trough,” added Smith.