Canadian manufacturing continued growth in July, report says

Operating conditions across Canada’s manufacturing sector remained firmly in expansion territory in July, a new report from IHS Markit says, as quicker increases in output and new orders, underpinned by another relaxation of COVID-19 restrictions, supported a robust rate of growth.

This constituted the thirteenth consecutive month of expansion for Canada’s manufacturing sector, the report said.

The report is based on IHS Markit’s latest survey of purchasing managers.

Job creation has now been seen in each month since July 2020, with the rate of growth quickening during the month. That said, the latest uptick was not enough to curb the rise in backlogs.

A sustained period of output and new order growth combined with efforts to limit the risk of future shortages led firms to raise their buying activity in July. Purchases and pre-production inventories rose solidly, although the rates of growth eased in both cases.

Vendor performance deteriorated markedly at the start of the third quarter, IHS Markit said. Port congestions, virus-related restrictions, and shortages in the supply of materials (particularly metals) were key reasons cited by panellists. That said, the incidence of delays was the smallest since February.

Input prices rose sharply in July amid higher freight, steel, and aluminium costs. The rate of inflation eased marginally from June, but was still amongst the quickest in the series history.

Consequently, firms raised their selling charges, and at the second-quickest rate in the survey history.

“Anecdotal evidence pointed to staff shortages and delivery delays as the pandemic continued to cause supply chain pressures, although the incidence of delays was the smallest in five months,” IHS Markit said. “Material shortages were again blamed for higher costs with firms often reporting rising metal prices.”

Demand improved during the month, and with a rate of new order growth that was fractionally quicker than that in June. “Virus-related restrictions eased further across the regions allowing the continued re-opening of businesses,” IHS Markit said. “Similarly, improvements in global economic conditions led to higher sales to international markets, mainly the U.S. and China.”

To cater for rising workloads, production rose at a sharp and accelerated pace. Higher staffing and demand levels supported the uptick, according to respondents.

“Firms remain well aware of the potential impacts of rising cases in international economies, by raising their stock levels to cushion against any future supply shocks,” says Shreeya Patel, economist at IHS Markit, in a statement. “There are still areas which look to threaten short and long-term productivity. A sharp rise in backlogs suggested severe capacity pressures, with comments often linking labour shortages. Delivery delays and material scarcity also made it difficult for firms to keep up with demand. Meanwhile, intense price pressures continued into the second half of the year, though firms have been passing on the higher expenses. Nevertheless, manufacturers in Canada expect growth to continue. With the vaccine rollout gaining momentum, and case numbers declining, a busy second half of the year is sure to follow.”