June PMI shows signs of turnaround
- July 5, 2020
There was a glimmer of hope for the Canadian manufacturing sector in June, as June economic data pointed to signs of a turnaround in momentum, according to the latest Purchasing Managers Index from IHS Markit.
The headline seasonally adjusted IHS Markit Canada Manufacturing Purchasing Managers’ Index (PMI) registered 47.8 in June, up from 40.6 in May and well above the survey-record low of 33 seen during April (33.0). A neutral reading is 50, meaning no growth or decline.
The report shows that across the Canadian manufacturing sector slides in output, new orders and employment are easing by considerable degrees.
Production volumes dropped to the weakest extent since the downturn began in March. Around 30 per cent of the survey panel reported a fall in output during June, while approximately 27 per cent signalled an expansion. Manufacturers reporting a decline in production overwhelmingly attributed it to weaker underlying demand.
Most of the growth was attributed to a phased restart of factory operations and reopening among clients after stoppages due to the COVID-19 pandemic.
Mirroring the trend for output, June data signalled the slowest decline in new work since the start of the downturn in March.
Manufacturers reporting lower sales mostly commented on cautious spending by clients and worsening global economic conditions in the wake of the COVID-19 pandemic. Export sales continued to decrease at a faster pace than total new orders in June.
A lack of pressure on business capacity and concerns about the outlook for customer demand continued to hold back staff hiring in June. Latest data indicated a fall in employment for the fourth month running, but the rate of decline was the lowest since the beginning of lockdown measures in Canada. Some manufacturers reported adding to their payrolls in response to more stable demand conditions, but this was more than offset by those signalling continued job cuts in June.
Manufacturing supply chains remained under severe pressure and still posted longer lead times for raw materials. More than 35 per cent of respondents indicated supplier performance had worsened in June. This was often linked to strained transportation capacity, especially for items shipped from the US.
Meanwhile, input cost inflation accelerated to its fastest for four months in June. Higher purchasing prices were attributed to exchange rate depreciation against the US dollar and, in some cases, surcharges from vendors linked to the COVID-19 pandemic and supply shortages. Canadian manufacturers reported an increase in their factory gate charges in June, but the pace of inflation was modest.
Looking ahead, around 42 per cent of the survey anticipated a rise in production volumes over the next year, while 16 per cent forecast a reduction. As a result, the index measuring business expectations for the year ahead remained in positive territory and reached its highest level since February.