Canadian manufucturing shows ‘signs of positivity’

There were some signs of positivity in the Canadian manufacturing sector at the end of the third quarter, with output, new orders, and exports all returning to growth in September, according to analysts at IHS Markit.

They also pointed out that the rate of job creation picked up to a seven-month high.

A further slowdown in the rate of input cost inflation was recorded, with price pressures among the weakest in the survey’s history. As a result, output prices also continued to rise only modestly.

The seasonally adjusted IHS Markit Canada Manufacturing Purchasing Managers’ Index (PMI) rose back above the 50.0 no-change mark in September, posting 51.0 from 49.1 in August. The rate of improvement in the health of the sector this signalled was modest, but the most marked in seven months.

All five constituents of the headline PMI contributed to the upwards movement, with renewed growth seen in output, new orders and stocks of purchases.

There were tentative signs of a pick-up in customer demand in September. New orders rose slightly, ending a six-month sequence of decline. New export business also ticked up during the month.

The slight rise in new orders encouraged some firms to expand their production, the first rise in six months. That said, demand remained fragile, leading other manufacturers to lower output and meaning that the overall rate of expansion was only fractional.

Employment rose in September, as has been the case in all but one month over the past three years. Moreover, the rate of job creation quickened to the fastest since February. As well as responding to an uptick in new orders, panellists also indicated that staffing levels had been raised as part of business expansion plans. Backlogs of work, meanwhile, continued to fall, albeit at a reduced pace.

The aforementioned plans to expand operations, coupled with expected increases in new orders, meant that firms were confident that output will expand over the coming year. Sentiment improved slightly from the previous month.

The rate of input cost inflation slowed for the third month running in September and was the weakest in the current period of rising input prices which began more than seven years ago. A number of panellists cited reductions in steel prices. A similarly modest rise in output prices was registered as firms passed on cost increases to their customers.

The scaling back of production in previous months meant that firms were still able to meet output requirements without needing to raise purchasing activity. Input buying continued to fall in September, but stocks of purchases rose as some panellists reported starting efforts to restock.

Input delivery times faced by manufacturers lengthened amid shortages of certain materials at suppliers and transport issues.

www.ihmarkit.com