Report: Strong Canadian manufacturing growth continued in October

Canadian manufacturers reported an increase in output, new orders and purchases during October, according to the latest IHS Markit Canada report.

The Manufacturing Purchasing Managers’ Index (PMI) indicates ongoing recovery in client demand, which led to more jobs in the sector.

The latest survey also revealed intense supply chain pressures as lead times from vendors lengthened further, which contributed to the greatest accumulation of incomplete work since June 2018.

“Companies appear to be struggling somewhat with the surge in new orders as backlogs rose further while employment increased only marginally during October, highlighting clear capacity pressures at Canadian manufacturers” says Shreeya Patel, economist at IHS Markit, in a statement.

“Higher backlogs will help sustain the recovery in output through the winter should new orders drop off, but there are also clear supply-side risks with the latest data revealing much longer input delivery times linked to shortages. Firms are attempting to restock inputs and there was an overall rise for the first time in nearly a year in October, albeit only a fractional increase.

Rising demand for inputs and higher prices for raw materials led to the fastest increase in average cost burdens for nearly two years.

PMI registers at 55.5

The headline seasonally adjusted PMI registered 55.5 in October, down slightly from 56.0 in September, indicative of another strong improvement in overall business conditions.

The index was supported by the fastest rise in production volumes since August 2018, which partially offset softer rates of new business growth and job creation compared to the previous month.

Higher levels of production have been recorded in each month since July. October data pointed to another sharp increase in new work received by Canadian manufacturing firms, with the rate of expansion only slightly softer that September’s 27-month high.

On the price front, strong demand for raw materials and shortages at suppliers led to the fastest rate of input cost inflation since November 2018. Survey panellists commented on higher prices for aluminium. Factory gate price inflation remained strong, easing only slightly since September.

Manufacturers remained upbeat about production volumes in the year ahead, but the degree of optimism eased to a three-month low. Nevertheless, firms hope for improved demand conditions, and the passing of the coronavirus disease 2019 (COVID-19).