Report: Canadian manufacturing shows improvement in October; supply shortages continue

The latest results of IHS Markit’s survey of purchasing managers indicate that the Canadian manufacturing sector showed healthy improvement in October. Output, new orders, employment and purchasing activity grew during this period.

However, the survey results also show that continued supply-chain shortages are increasing lead times. This, combined with high client demand and concerns of future supply shocks, has prompted companies to raise their pre-production inventories at a greater pace. Firms remained optimistic that global economic conditions will improve over the coming 12 months and support expansions in output.

“Latest PMI data revealed that Canada’s manufacturing sector performed strongly, continuing 2021’s run of robust growth. New orders rose at a quicker pace in October, and firms continued hiring activity to meet their existing orders. Whilst domestic demand conditions were favourable, firms across the regions also recorded a healthy upturn in international demand as restrictions continue to ease across the globe,” said Shreeya Patel, an economist at IHS Markit.

The headline seasonally adjusted IHS Markit Canada Manufacturing Purchasing Managers’ Index (PMI) registered at 57.7 in October, up from 57 in September. The latest reading extended the period of growth to 16 successive months, with the latest expansion the third-strongest in over 11 years of data collection. Central to growth was a sharp upsurge in new orders amid improvements in domestic demand and new product launches. Exports also rose at a quicker pace with the rate of growth the steepest since May 2018.

Output expanded solidly during the month with the rate of growth little-changed from that seen in September. Larger workforces and rising orders were key drivers of production growth, though some firms did mention that delivery delays and material shortages did soften the overall uptick.

Goods producers continued to register substantial deteriorations in vendor performance with lead times lengthening at the most marked rate in the survey to date. Raw material and container shortages alongside transportation bottlenecks led to extensive delays.

Cost burdens went up once again. Material shortages, especially for metals, packaging and electronic components were responsible for the increase. There were also reports of higher shipping, fuel and energy costs. The rate of cost inflation was the second-steepest on record, close to September’s peak. The strong demand environment allowed firms to raise their selling charges, which they did so at the second-fastest rate on record.

With supply-chain disruption persisting, and lead times especially lengthy, firms increased their input buying. Consequently, stocks of purchases rose, and at the steepest rate on record as firms sought to protect against future supply shocks and delivery delays. Postproduction inventories fell only marginally, with firms reportedly making active efforts to boost output and prepare for greater demand in the coming months.

Business confidence improved to the strongest since April 2018. Strengthening demand and hopes for improved global economic conditions underpinned optimism.