August was another positive month overall for Canadian manufacturing’s recovery, as new orders and output both increased solidly, according to IHS Markit’s Purchasing Managers’ Index (PMI).
The report also says input price inflation accelerated at the fastest pace since January 2019, and signs of pressure on capacity are emerging, driving an uptick in manufacturing sector employment.
“Latest data highlighted a strong upturn in the Canadian manufacturing industry, continuing the recovery from the severe second quarter downturn. Production and order book volumes both expanded at the fastest pace in two years, driven by the reopening of client businesses and improvements in customer demand,” said Shreeya Patel, Economist at IHS Markit.
The headline seasonally adjusted PMI registered 55.1 in August, up from 52.9 in July, to signal the sharpest improvement in business conditions since August 2018.
Manufacturing production posted its fastest growth in two years, with firms linking improved output with recovering market conditions following the COVID-19 lockdown.
Mirroring the trend seen in output, the latest survey data pointed to a second successive expansion in new orders in the Canadian manufacturing sector. Foreign demand also improved, ending a five-month span of falling new export orders.
The latest expansion in payroll numbers was the fastest since January 2019, with survey respondents signalling efforts to alleviate capacity constraints after a rebound in new orders.
Backlogs of work increased for the first time since February 2019, a sign of growing demand and insufficient capacity for completing outstanding business.
“That said, it was not all positive in August, delivery times lengthened at another marked rate amid ongoing COVID-19 disruption, while there were signs of building inflationary pressures,” Patel said.
Intense supply chain pressures continued in August, with longer delivery times for purchased items.
Despite two consecutive months of rising new orders, market uncertainty continued to weigh on stocks of purchases, but the rate of contraction was modest. Stocks of finished goods were also depleted, as capacity pressures forced firms to tap into inventory to fulfil orders.
Input cost inflation accelerated its fastest for 19 months, driven up by increased raw material costs. Canadian manufacturers have so far been able to pass this cost burdens to clients through higher factory gate charges. The rise in selling prices was the third in the past four months, and the fastest since April 2019.