Canadian Manufacturing

Canadian manufacturing conditions worsen in August, PMI

Production fell amid a sustained drop in new work and business optimism eased to a three-and-a-half year low

September 30, 2019  by CMO Staff

LONDON – August data revealed a renewed deterioration in business conditions across the Canadian manufacturing sector, following a slight improvement during the previous month.

This was highlighted by a fall in the seasonally adjusted IHS Markit Canada Manufacturing Purchasing Managers’ Index (PMI) to 49.1 in August, from 50.2 in July.

The latest PMI reading was the lowest for three months and signalled a modest downturn in overall manufacturing performance. A sharper reduction in new order intakes was a key factor weighing on the headline index in August. New work has now declined for six months running and the latest fall was the sharpest since December 2015.

Survey respondents noted that US-China trade tensions, subdued energy sector spending and greater global economic uncertainty had all acted as a brake on client demand. Moreover, export sales declined again in August, which manufacturers often linked to softer U.S. economic growth and worsening automotive sector business conditions.

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A decline in new work led to another reduction in production volumes during August. Lower output has been recorded in each month since April, although the latest drop was only marginal. There were also signs of reduced capacity pressure in August, as suggested by a sharp drop in backlogs of work at manufacturing companies.

Meanwhile, the rate of manufacturing sector job creation remained only modest and eased since July. Some survey respondents noted that staff hiring had been held back by less upbeat growth expectations at their plants. Reflecting this, latest data signalled the weakest degree of optimism about the year-ahead business outlook since February 2016.

Supply chain pressures moderated in August, as signalled by an improvement in vendor performance for the first time since June 2013. Manufacturers noted that reduced demand for inputs had contributed to shorter delivery times from suppliers in August.

Lower levels of purchasing activity have been recorded in five of the past six months, reflecting falling production volumes and efforts to streamline inventories. However, stocks of finished goods were accumulated at the fastest pace since April 2014. A number of survey respondents suggested that weaker-than-expected sales had led to rising post-production inventories.

On a more positive note, the latest survey signalled another slowdown in cost inflation across the manufacturing sector. August data pointed to only a marginal rise in average cost burdens, with the rate of inflation the lowest since July 2012. Manufacturers reported lower prices paid for some raw materials (particularly steel).

At the same time, average prices charged by manufacturing firms increased only fractionally in August, with the rate of inflation the lowest since October 2016.