Report: Manufacturing conditions continue to improve in February

Operating conditions in the Canadian manufacturing sector continued to improve in the month of February, according to IHS Markit Canada’s latest Manufacturing PMI (Purchasing Managers’ Index) report.

The headline seasonally adjusted PMI registered 54.8 in February, up from 54.4 in January, indicative of a strong improvement in overall operating conditions.

“An improving domestic demand picture, greater purchasing activity and a sustained period of employment suggests firms expect greater output in the months ahead,” says Shreeya Patel, economist at IHS Markit, in a statement.

“That said, COVID-19 continues to pose its threats with severe transportation bottlenecks impacting the supply of inputs. As a result, firms faced sharper cost pressures, which were consequently passed on to customers.”

The latest survey data continued to reveal intense supply chain pressures, with delivery times lengthening markedly. Firms often mentioned that restrictions, implemented to curb the spread of COVID-19, had often led to material shortages and transportation delays. As a result, manufactures incurred higher costs through supplier surcharges.

Output volumes rose in the latest survey period, although the rate of expansion eased to the softest in the current eight-month sequence of growth. Production schedules were supported by higher new order volumes, although pandemic restrictions weighed slightly on output, according to panellists.

Eight months of new orders

To cater for a sustained rise in production, firms added to their workforces for the eighth month in a row. The overall rate of job creation was solid and accelerated from that seen in January.

Eight consecutive months of rising new orders contributed to a further increase in purchasing activity. That said, stocks of inputs grew only fractionally, which firms attributed to material shortages.

Meanwhile, post-production inventories were depleted markedly. On the price front, intense cost pressures persisted with the rate of input price inflation accelerating in February. Higher material (mainly metals) and transportation costs were often mentioned.

Respondents expressed a positive view of production over the next 12 months, with the degree of optimism reaching a five-month high. Panellists mentioned hopes of the complete easing of virus-related restrictions following a largely successful vaccine rollout programme.