Manufacturing sales highest in six yearsClick image to enlarge

Canada's manufacturing industry continues to see strong growth and the latest figures from the Markit Canada Manufacturing Purchasing Managers' Index (PMI) shows that the business conditions in the sector have improved at the fastest pace since April 2011.

According to Markit Canada, this reflected a steeper rise in new work and greater job creation, alongside another robust increase in production volumes. Higher levels of client spending encouraged a sustained rebound in input buying and inventory building across the manufacturing sector. However, strong demand for inputs contributed to rising raw material prices in April, with cost inflation accelerating to its fastest since May 2014.

“April’s survey highlights that the Canadian manufacturing sector continued to rebound from the soft patch seen over the past two years," says Tim Moore, senior economist at survey compilers, IHS Markit. "The latest manufacturing performance was the strongest since 2011, led by a recovery in demand across the oil and gas sector. Manufacturers also sought to rebuild capacity, as stocks of inputs were accumulated at the fastest pace since May 2012 and job creation reached a six-year peak.

"Manufacturing growth remained brightest in Alberta & B.C. during April, but there were signs that the recovery has become more broad-based. In particular, manufacturers in Quebec pointed to the strongest upturn in overall manufacturing conditions for almost five years.”

At 55.9 in April, up from 55.5 in March, the seasonally adjusted PMI registered above the 50.0 no-change threshold for the fourteenth month running. Moreover, the latest reading signalled the strongest improvement in business conditions for exactly six years.

This mainly reflected faster rises in new orders and employment numbers in April. Production volumes increased at a robust pace during April, with the latest expansion only slightly slower than the 40-month peak seen in March. There were signs that stronger demand had created renewed pressures on operating capacity, as highlighted by a rise in backlogs of work for the first time since the start of 2017.

Greater-than expected sales growth also contributed to a depletion of finished goods inventories, although the rate of decline was only marginal. New order growth accelerated to its steepest since November 2013. Manufacturers mainly cited improved domestic sales, supported by a rebound in energy sector spending. April data pointed to a moderate increase in new export orders, with the rate of expansion the fastest since March 2016.

Increased volumes of incoming new work underpinned a robust and accelerated upturn in staff hiring across the manufacturing sector during April. The rate of job creation was the steepest since March 2011. This was partly driven by a continued rebound in business optimism regarding the year-ahead outlook. Reflecting this, the balance of Canadian manufacturers expecting a rise in production requirements over the next 12 months reached its highest level since February 2014.

Meanwhile, the latest survey revealed a robust rise in purchasing activity among manufacturing companies, which fuelled the steepest pace of stock building for almost five years. Stronger demand for raw materials contributed to a sharp and accelerated pace of cost inflation in April. Higher prices for steel and chemicals were mentioned in particular. Pressure on margins resulted in another robust increase in factory gate prices.

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