Canadian manufacturers are expecting a pick-up in production during the year and a more stable demand environment. PHOTO courtesy EXCO
Canadian manufacturing dipped back into contraction territory during March, with drops in both production and new orders, yet there is confidence in future prospects.
After accounting for seasonal factors, the S&P Global Canada Manufacturing Purchasing Managers’ Index (PMI) registered 48.6, down noticeably from 52.4 in February. It was the lowest reading recorded by the index since June 2020 and represented a modest deterioration in operating conditions.
“The recovery of Canada’s manufacturing economy stalled during March, with renewed falls in both production and new orders signalled. Broader macroeconomic uncertainty, and the negative impact of rising prices on client purchasing power were key factors that weighed on market demand,” commented Paul Smith, Economics Director at S&P Global Market Intelligence.
The rate of decline in production was modest, however, with firms signalling the fall was closely linked to the steepest contraction of new orders since last October.
These factors were common for both domestic and external clients: new export orders fell in March for a tenth successive month and to the sharpest degree since December.
Nonetheless, firms are expecting a pick-up in production over the coming 12 months amid hopes of economic recovery and a more stable demand environment. These factors should support sales and output, with firms suitably buoyed to take on additional staff for a fifth successive month. A combination of higher staffing levels, better productivity and relatively fewer component shortages meant firms were able to clear backlogs of work at their plants to the greatest degree for four months. They were also able to add to their inventories of finished goods slightly for the second time in 2023 so far.
Manufacturers also continued to report steeply rising prices. Input costs rose at a strong overall pace, with a wide range of goods and inputs again up in price since the previous month. However, the rate of inflation maintained the gentle downward trend evident since the turn of the year, dropping to its lowest since July 2020 and remaining below the long-run survey average. Companies signalled that this in part reflected a relative improvement in supply-side goods availability: although vendor performance was reported to have worsened again, average lead times lengthened only slightly and to the weakest degree since October 2019. There was evidence of fewer delays in shipping, with container availability said to have improved.
“These are welcome developments given their roles in constraining manufacturing sector performance since the onset of the pandemic in 2020. And despite some residual challenges persisting – cost inflation remains high for instance – firms are growing in confidence, with optimism rising to its strongest in nearly a year and hiring activity being sustained,” Smith said.