April data signalled another robust expansion in operating conditions in the Canadian manufacturing sector, despite a slight moderation since March, according to the S&P Global Canada Manufacturing PMI.
The seasonally adjusted S&P Global Canada Manufacturing Purchasing Managers’ Index (PMI) registered at 56.2 in April, down from March’s survey-record high of 58.9. The latest reading continued to indicate robust operating conditions and extended the current period of growth to 22 months, but dipped to a joint 14-month low.
“The start of the second quarter of 2022 yielded another favourable month of trading for Canadian manufacturers. Demand conditions were supportive and continued to underpin a solid improvement in operating conditions. As has been the case over the last year or so, consumer demand remains strong despite elevated rates of inflation,” said Shreeya Patel, economist at S&P Global.
Output and purchases rose sharply. Meanwhile, strong capacity pressures continued to emerge which firms responded to by raising their staffing levels at an accelerated pace.
There was also a solid uptick in new orders. Firms often mentioned securing new clients in the domestic market. Sales to international clients also increased with exports rising for the second successive month. With strong demand conditions persisting, firms raised their production levels at the start of the quarter. Consumer goods firms raised their output levels at the strongest rate followed by those in the investment and intermediate goods sectors, respectively.
Vendor performance deteriorated greatly during the month, although to the joint-weakest degree since November 2020. There were widespread reports of material scarcity, truck shortages and freight delays. Consequently, backlogs rose sharply. Firms did, however, seek to tame the rise in incomplete work by adding to headcounts, though this was not enough to curb an increase in outstanding business. Firms also mentioned that there were still shortages of skilled labour. Subsequently, firms had little capacity to raise post-production inventories, which fell slightly in April.
Capacity constraints have persisted and firms look to be struggling with labour shortages. Recent geopolitical developments have also exacerbated costs, particularly for fuel and raw materials,” Patel said. “At the same time, anecdotal evidence often mentioned shortages of trucks which could further impact production in the future.”
Raw material scarcity and lengthy lead times prompted Canadian manufacturing firms to raise their pre-production inventories. Stockpiling has now been seen in each of the last 15 months. Purchasing activity, meanwhile, rose substantially, and at the third-strongest rate in the series history.
Turning to prices, input price inflation moderated from March’s peak. The rate of increase was still substantial, however, and among the quickest in the series history. A number of reasons were cited for higher input costs including rising fuel, material, transportation and labour expenses. The war in Ukraine also reportedly drove up input costs.
Consequently, selling prices rose sharply. In fact, the rate of inflation was the second-strongest in the series history surpassed only by that seen in March. Firms reported efforts to protect profit margins and pass on higher transportation and material costs.
Looking ahead, favourable demand conditions supported positive sentiment at the start of the second quarter. However, the degree of optimism moderated from March and dipped just below the long-run series average. Steep cost pressures, the geopolitical environment and uncertainty weighed slightly on hopes during April.
“Nevertheless, Canada’s manufacturing sector has performed strongly despite supply bottlenecks, COVID-19 and increasing uncertainty. Firms remain prepared and continue to foresee output growth over the coming months,” Patel concluded.