Manufacturing growth in Canada continues, but slower pace
"Canada's manufacturing sector continued to grow in July, albeit at a slower pace, suggesting global growth worries are weighing on the economy.” Craig Wright, senior vp, chief economist, RBC
After registering strong growth in May and June, Canada's manufacturing sector slowed to a four-month low in July, according to the RBC Canadian Manufacturing Purchasing Managers Index (RBC PMI), a monthly survey, conducted in association with Markit, a global financial information services company, and the Purchasing Management Association of Canada (PMAC), which offers a comprehensive and early indicator of trends in the Canadian manufacturing sector.
The RBC PMI, composite indicator designed to provide a single-figure snapshot of the health of the manufacturing sector, signalled a solid improvement in Canadian manufacturing business conditions during July. However, at 53.1, down from 54.8 in June and below the series average of 54.2, the headline index indicated the weakest improvement since March.
The RBC PMI found that the volume of new orders received by Canadian manufacturers rose in July, with this generally linked to greater client demand. However, new orders, as well as output, grew at sharply reduced rates compared to June. Employment increased at the slowest pace since April, though the rate of job creation remained solid overall, while the average price paid for inputs fell for the first time since October 2010.
"Canada's manufacturing sector continued to grow in July, albeit at a slower pace, suggesting global growth worries are weighing on the economy. Employment improved for the sixth consecutive month in the sector, with 21 per cent of firms hiring additional staff, largely driven by increased production," said Craig Wright, senior vice-president and chief economist, RBC. "As manufacturing conditions remain positive overall, we anticipate that further gains in employment and a pick-up in exports will support Canada's GDP growth in 2012."
In addition to the headline RBC PMI, the survey also tracks changes in output, new orders, employment, inventories, prices and supplier delivery times.
Key findings from the July survey include:
- New orders and output grow, albeit at sharply reduced rates;
- Solid increase in headcounts, but rate of job creation at three-month low; and
- Average input costs fall for first time in 22-month series history.
The volume of new orders received by Canadian manufacturers increased in July, continuing the trend that has been recorded in each month since the inception of the survey. Approximately 32 per cent of firms reported an increase in new work, with this generally linked to greater client demand. However, new export orders rose only marginally, partly reflecting weakness in the global economy. Subsequently, total new work intakes grew at a sharply reduced rate during the latest survey period.
Reflective of the rise in new orders, production increased further during July. Although moderate, output growth was the slowest in four months. Meanwhile, firms depleted their stocks of finished goods, with a number of companies using existing inventories to fulfil some new order requirements. Concurrently, backlogs of work fell for the second month running and to a greater extent than in June.
Manufacturers raised their purchases and increased their input inventories in July. Firms have accumulated stocks of purchases for four months running, but the latest increase was the weakest in this sequence. Suppliers' delivery times meanwhile lengthened further during July. Panellists suggested that vendors struggled with capacity issues. The latest increase in lead times was moderate, but to a lesser extent than in the previous survey period.
Employment in Canada's manufacturing sector rose for the sixth consecutive month in July. Approximately 21 per cent of firms hired additional staff since June, largely citing the increase in production. Although remaining solid, the rate of job creation nonetheless slowed to a three-month low.
Manufacturing operating conditions improved in all four Canadian regions in July. Quebec posted the strongest month-on-month improvement, while the weakest was reported in Ontario. In Ontario, the volume of new orders received by manufacturers was unchanged from that recorded one month previously, but growth was recorded elsewhere. July data indicated average input costs fell in three regions. The only exception was Alberta & British Columbia, which saw a slight increase.
"Although the survey data pointed to a slower manufacturing expansion in July, with new export orders rising only marginally over the month, this can partly be attributed to weakness in the global economy," said Cheryl Paradowski, president and CEO, PMAC. "Average input prices, meanwhile, fell for the first time in the 22-month series history, as surveyed firms reported lower prices for raw materials such as steel, aluminum, resin and packaging."
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