Canadian manufacturers registered a record improvement in business conditions during December, according to the latest IHS Markit Purchasing Managers Index (PMI).
The seasonally adjusted IHS PMI registered 57.9 in December, up from 55.8 in November, signalling the strongest overall improvement in business conditions since the survey began in October 2010.
The report says expansions in new orders and output underpinned the growth and that a sustained increase in manufacturing workloads reduced capacity and spurred another round of job creation.
There were also widespread reports that supply chain pressures mounted in December, which were often linked to the restrictions imposed to curb the surge in coronavirus disease 2019 (COVID-19) cases.
Canadian manufacturers remained optimistic that their output levels in 2021 will improve. On the price front, material shortages and higher transportation costs added to inflationary pressures. Both input and output price inflation hit 26-month highs in December.
The headline index has now posted above the 50.0 neutral value in each month since July. Production volumes increased at a marked pace in December, extending the current run of growth to six consecutive months. The latest expansion, the strongest since August 2018, is attributed to a substantial increase in order books, with new order growth the strongest in three months.
The rise in new work from abroad was the greatest since August 2018, driven by rising demand from clients in the U.S. and Asia.
Rising workloads and long-term expansion plans contributed to another round of job creation, which was the strongest in two years.
However, capacity pressures continued to emerge with the rate of incomplete work rising. Manufacturing firms continued to boost their purchasing activity to boost their input of raw materials and supplies. However, port congestion and difficulty obtaining materials were reflected in another marked decline in vendor performance. Subsequently, firms built up stock of inputs amid expectations of price hikes and lengthy delivery times in the months ahead.
Higher raw material and transportation costs increased input prices, the steepest since October 2018. Sharp rises in operating expenses and resilient demand conditions led to the fastest increase in selling prices for over two years. Finally, sentiment improved to the strongest since September. Canadian manufacturers remained optimistic that their output volumes in 2021 will improve.
Hopes of greater demand, business expansions and promising vaccine developments underpinned these expectations.