July manufacturing PMIClick image to enlarge

The IHS Markit Canada Manufacturing Purchasing Managers’ Index (PMI) signalled another fall in production levels for the month of July, but the decline was the softest since the current downturn began in April.

The seasonally adjusted index registered 50.2 in July, up from 49.2 in June and above the 50.0 no-change value for the first time since March. A slower fall in output and a rise in pre-production inventories were the main factors pushing the headline PMI into positive territory in July.

Business optimism regarding the outlook for the year ahead rebounded and staffing levels picked up for the third month running. At the same time, input cost inflation eased to its weakest for just over six years, which a number of survey respondents linked to lower steel prices.

July registered a slight reduction in manufacturing output, but the rate of decline eased markedly from the three-and-a-half-year record seen in June. New orders were also closer to stabilisation in July, with the latest survey pointing to the slowest drop in sales since March.

HIS Markit says companies that reported a decrease in new work generally cited subdued export demand in July as the reason. Moreover, latest data indicated that new orders from abroad fell at the fastest pace for four months. Anecdotal evidence suggested that softer economic growth in the US and Europe acted as a brake on export sales. Some manufacturers also cited a headwind from ongoing global trade frictions.

Subdued customer demand contributed to another sharp reduction in work backlogs for July. Lower volumes of work-in-hand have been recorded in each month since March. Respondents continued to comment on a lack of pressure on business capacity. However, payroll numbers were increased again in July, with the rate of job creation the strongest for five months.

Some manufacturing firms attributed additional staff recruitment to long-term business expansion plans and a rise in optimism about the demand outlook. Reflecting this, latest data signalled the second-strongest degree of confidence regarding the year-ahead growth outlook since May 2018.

Pre-production inventories increased for the first time in six months. However, manufacturers reported another decline in their stocks of finished goods. A number of firms commented on efforts to improve cash flow.

Meanwhile, input price inflation moderated in July and was the lowest since May 2013. Softer cost pressures and intense competition for new work resulted in the weakest increase in factory gate charges for just under three years in July.

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