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Canadian manufacturers report strong start to 2017

OXON, U.K.–Canadian manufacturers reported a strong start to 2017, with business conditions improving at the fastest pace for just over two years. The upturn reflected robust rates of output and new order growth in January, alongside a sustained rise in staffing levels. Looking ahead, around 41% of the survey panel anticipate an increase in production volumes over the next 12 months, while only 6% forecast a reduction. As a result, this signalled one of the most upbeat expectations for output growth since early-2014, said the report.

The seasonally adjusted Markit Canada Manufacturing Purchasing Managers’ Index  registered 53.5 in January, up from 51.8 in December and above the neutral 50.0 threshold for the eleventh consecutive month. Moreover, the headline PMI pointed to the strongest upturn in operating conditions for just over two years.

A robust and accelerated expansion of overall production volumes was the key factor boosting the manufacturing sector in January. Higher levels of output have been recorded in each of the past three months, with the latest rise the strongest since December 2014. Survey respondents commented on efforts to boost production in response to greater client demand. Some firms also noted that output growth had been helped by a reduced desire to streamline inventories.

January data signalled the sharpest upturn in new order volumes for just over two years, which largely reflected stronger demand from domestic sources. A number of manufacturers cited rising sales to energy sector clients in particular. Meanwhile, new export orders picked up at only a moderate pace, although the rate of expansion was the most marked seen since March 2016, the report noted.

Higher levels of incoming new work contributed to another increase in staffing numbers across the manufacturing sector in January. The latest survey indicated that the rate of job creation was the fastest since last July, which was linked to greater production requirements and improved confidence towards the business outlook. Despite efforts to boost payroll numbers, manufacturers reported a rise in backlogs of work for the first time in three months during January.

Meanwhile, input buying increased at a solid pace at the start of 2017, while inventories declined for a further month. Supplier delivery times lengthened to the greatest degree since November 2014, although this was partly attributed to transportation delays following extreme weather.

On the price front, the latest survey revealed a sharp and accelerated pace of cost inflation. This was linked to higher commodity prices and rising imported raw material costs. Pressures on margins resulted in one of the fastest rates of factory gate price inflation since early-2014.
Regional highlights:

-Manufacturing growth was the strongest for over three years in Alberta & B.C.
-Business conditions deteriorated again in Quebec, partly reflecting weaker export sales
-All regions reported a marked deterioration in supplier performance at the start of 2017

“January’s survey data highlights an impressive rebound in manufacturing output growth to its strongest since the end of 2014. Alberta & BC led the way at the start of the year, with manufacturers reporting the fastest upturn in production for just over three years and another robust improvement in new order books. Higher levels of incoming new work were mainly driven by domestic sales at the start of 2017, especially to the oil and gas sector. This contributed to a sustained rise in staffing numbers, which was also centred upon manufacturers in Alberta & BC,” said Tim Moore, Senior Economist at survey compilers IHS Markit.

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