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Canadian manufacturers recorded further solid rises in output, new orders and purchases during October, signalling another marked improvement in overall business conditions.

An ongoing recovery in client demand led to a further increase in employment. However, the latest survey also revealed intense supply chain pressures as lead times from vendors lengthened further, which contributed to the greatest accumulation of incomplete work since June 2018.

"October data suggests another improvement in the health of the Canadian manufacturing sector as the PMI registered at 55.5," says Shreeya Patel, economist with IHS Markit. "New orders and output have increased sharply with firms remaining optimistic that production will improve over the course of the year.

"Companies appear to be struggling somewhat with the surge in new orders as backlogs rose further while employment increased only marginally during October, highlighting clear capacity pressures at Canadian manufacturers. Higher backlogs will help sustain the recovery in output through the winter should new orders drop off, but there are also clear supply-side risks with the latest data revealing much longer input delivery times linked to shortages. Firms are attempting to restock inputs and there was an overall rise for the first time in nearly a year in October, albeit only a fractional increase."

She adds that Input price inflation rose to a 23-month high while charge inflation eased slightly, indicating upward pressure on margins.

Strong output growth was linked to higher new work inflows and ongoing efforts to boost operating capacity across the manufacturing sector. Higher levels of production have been recorded in each month since July. October data pointed to another sharp increase in new work received by Canadian manufacturing firms, with the rate of expansion only slightly softer than September's 27-month high. Panel members noted new business wins in both domestic and international markets.

Four consecutive months of increasing new orders led firms to boost purchasing activity in October, with the latest increase sharp overall. That said, stocks of purchases increased only fractionally, which firms attributed to supplier shortages and higher prices. Meanwhile, stocks of finished goods were diminished in October, which was commonly linked to the fulfilment of new orders.

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