Canadian manufacturing leads strong growth

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Canada’s manufacturing industry grew at its fastest pace in more than two years, another sign that Canada’s economy is off to a strong start in 2017.

According to the Markit Canada Manufacturing Purchasing Managers’ Index (PMI), Canada’s PMI rose to 53.5 in January from 51.8 in December 2016.

The upturn reflected robust rates of output and new order growth in January, alongside a sustained rise in staffing levels. Looking ahead, around 41 per cent of the survey panel anticipate an increase in production volumes over the next 12 months, while only 6 per cent forecast a reduction. As a result, this signalled one of the most upbeat expectations for output growth since early 2014.

“January’s survey data highlights an impressive rebound in manufacturing output growth to its strongest since the end of 2014,” says Tim Moore, senior economist at survey compliers IHS Markit. “Alberta and 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.”

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, according to Markit Canada. 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.

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.

“Canada’s manufacturing sector has started 2017 on a strong footing, with business conditions improving at the fastest pace for just over two years,” says Mike Whelan, chair of the Supply Chain Managenet Association (SCMA) national board. “The turnaround in manufacturing growth has been fuelled by stronger domestic demand and a rebound in sales in the energy sector. However, a surge in input costs has placed pressure on margins, which resulted in one of the fastest rate of factory gate price inflation for almost three years in January.

“The latest survey of Canada’s purchasing managers revealed that the manufacturing recovery remained centered on Alberta & B.C., where growth was the fastest since late-2013. Ontario also had a good month in January, while softer export sales in Quebec continued to weigh on the manufacturing sector.”

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