Canadian manufacturing sector remains in contraction territory

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Although the performance of manufacturing remained sub par in June, there was a noted improvement in lead times and price stability. PHOTO by Pexels.

The performance of the Canadian manufacturing sector continued to worsen during June, according to the S&P Global Canada Manufacturing PMI.

Concurrent falls in output, new orders and employment were all recorded. Firms sought to adapt their operations by cutting any excess input inventory at their plants.

Relatively good news however came in the form of a survey record improvement in average lead times as pandemic related supply-side challenges continued to dissipate. Price stability was also broadly signalled in the latest survey period.

The seasonally adjusted S&P Global Canada Manufacturing Purchasing Managers’ Index remained below the 50.0-change mark during June. Moreover, falling slightly from 49.0 in May to 48.8, the index signalled its worst performance since March. It was the second month in a row that a deterioration in operating conditions has been registered.

Concurrent falls in both output and new orders were registered in June. Firms commented that market demand was subdued, amid reports that high interest rates and the uncertain macroeconomic outlook were leading to the postponement of spending decisions by clients. Companies noted that new export orders were again down, with some firms noting lower demand from the neighbouring USA.

The overall decline in new orders was steeper than that seen for production. And in a sign that the fall in new work was a little sharper than expected, Canadian manufacturers reported a marginal rise in warehouse inventories for a second month in a row. In contrast, inventories of purchases were reported to have declined for an eleventh successive survey period, and to a stronger degree. Companies signaled a preference of utilising existing inventory, rather than buy in new inputs. This was reflected in another, albeit negligible, decline in purchasing activity over the month

A lack of demand for new inputs continued to reduce pressure on vendors. With reports also that pandemicrelated freight challenges and port congestion continued to dissipate, manufacturers signalled that average lead times for the delivery of inputs improved at the greatest degree in the survey history. Amid reports that vendors were less busy, and with less room to raise prices, average input costs increased during June only modestly. A similar development was seen for output charges, which rose modestly but at a rate below down on those seen during much of 2021 and 2022.

Meanwhile, confidence in the outlook remained positive. Firms hoped to eventually benefit from an economic recovery and reap the rewards of past investment in marketing and promotional strategies. However, confidence remained below trend, and with current production and new order volumes subdued, firms on average chose to cut their employment levels. The marginal fall in workforce numbers

made little difference in firms’ ability to deal with overall workloads as backlogs of work declined for an eleventh successive month in June.

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