Overall business conditions in Canada’s manufacturing sector grew in March – but at the slowest rate in two and a half years.
The latest IHS Markit Canada Manufacturing PMI revealed softer rises in manufacturing output and employment levels in a context of lagging demand. Export sales were a particular drag in March, as new work from abroad fell the most since February 2015.
The headline seasonally adjusted IHS Markit Canada Manufacturing Purchasing Managers’ Index (PMI) hit 50.5 for March, well down from 52.6 in February and just barely above the neutral 50.0 mark. This was the slowest upturn in operating conditions since September 2016.
Weaker production growth was a key factor. Output volumes increased at the slowest pace for almost two and a half years. Respondents cited weak customer demand, especially from export markets. Some manufacturers undertook to streamline inventories of finished goods by cutting production schedules.
The March figures indicated a fractional decline in new orders received by manufacturing firms, which marked an end to a 29-month period of sustained expansion. The overall reduction was driven by the sharpest fall in new export work for just over four years.
A number of survey respondents noted weaker global trade flows and pressure on export competitiveness from rising domestic raw material costs, particularly steel.
Subdued demand reduced the amount of work available to replace completed projects during the month. This was highlighted by a reduction in backlogs of work across manufacturing for the first time in six months. Some producers responded to softer business conditions by reduced staff hiring. The rate of employment growth was marginal – and the weakest for almost two and a half years.
A decline in new work also weighed on manufacturers’ assessment of the business outlook for the year ahead. The degree of positive sentiment about future production growth was the second weakest since August 2016.