Canadian Shipper


RBC Canadian Manufacturing Purchasing Managers’ IndexTM finds both output and new order growth slows sharply in January

TORONTO,  Ont. —  Canadian production and new orders increased only modestly in January, according to the RBC Canadian Manufacturing Purchasing Managers Index (RBC PMI).

The headline RBC PMI – a composite indicator designed to provide a single-figure snapshot of the health of the manufacturing sector – registered 50.6 in January, down sharply from 54.0 in December, and indicated the weakest improvement in Canadian manufacturing business conditions since data collection began in October 2010. Index readings above 50.0 signal expansion from the previous month; readings below 50.0 indicate contraction.

The RBC PMI found that Canadian manufacturing business conditions improved in January, with firms reporting further output and new order growth. However, both rates of expansion were only modest and the weakest since data collection began. Concurrently, employment fell for the first time in the survey history, while the rate of input price inflation strengthened to a five-month high.

“Global economic uncertainly, particularly rooted in the euro zone, weighed heavily on the Canadian manufacturing sector in the first month of 2012,” said Craig Wright, senior vice-president and chief economist, RBC. “Canada’s modest recovery may be jeopardized if European policymakers fail to contain the sovereign debt crisis.”

The Index is conducted in association with Markit, a global financial information services company, and the Purchasing Management Association of Canada (PMAC). It offers a comprehensive and early indicator of trends in the Canadian manufacturing sector.

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 January survey include:

  • Modest rise in total new orders, as new work from abroad falls solidly
  • Net job losses for first time since data collection began in October 2010
  • PMI signals weakest improvement in business conditions in survey history

Monitored companies partly attributed the improvement in business conditions to greater client demand. New orders received by Canadian manufacturers increased further in January, but growth was only modest and notably slower than that registered in December. In contrast, new work intakes from abroad fell solidly during the latest survey period, with almost one-fifth of respondents reporting lower volumes of new export orders.

Reflective of the rise in total new orders, Canadian manufacturers raised production and depleted stocks of finished goods in January. However, output growth was only modest and the weakest in the 16-month survey history. Backlogs declined for the fourth consecutive month, with a number of panellists citing the completion of large projects and weak growth of incoming new work.

Firms purchased a greater amount of inputs during the latest survey period, as has been the case since the series started in October 2010. However, the latest rise in input buying was only marginal. Stocks of purchases meanwhile were depleted for the fifth month running in January. Anecdotal evidence linked the fall in input inventories to leaner stock holding policies. Suppliers’ delivery times continued to lengthen in January, but the latest increase in lead times was slightly weaker than that reported in December.

Employment in Canada’s manufacturing sector fell for the first time in the 16-month series history during the latest survey period. Approximately 17 per cent of firms reduced their workforces (while 14 per cent hired additional staff), and generally attributed job losses to the slower rate of new order growth.

Input costs rose further in January, with panellists reporting price increases across a wide variety of goods. Notably, the rate of input price inflation was strong and the fastest since last August. Firms partly passed on greater cost burdens to clients by raising their output charges. Although the rate of output price inflation quickened since December, it remained slower than its series average.

Regional highlights include:

  • Regional PMI data indicated that manufacturing business conditions improved in Alberta & British Columbia and Ontario during January.
  • Firms in Quebec recorded a fall in new order volumes.
  • Employment growth was only reported in Alberta & British Columbia.
  • The rates of input price inflation quickened in all four regions in January. The strongest increase was posted in Alberta & British Columbia.

“Growth in the Canadian manufacturing sector slowed sharply in January, with both output and new orders increasing at the slowest rates in the survey’s history. The latter partly reflected weakness in the global economy, as new export orders fell solidly from a month earlier,” said Cheryl Paradowski, President and Chief Executive Officer, PMAC. “Meanwhile, Canadian manufacturers reported a sharp rise in input costs at the beginning of 2012, even after adjusting for annual price increases. Raw materials such as metals and resins were highlighted as having increased in cost