A sustained rebound in output and new business levels continued in October, with a modest improvement in business conditions in Canadian manufacturing, according to the IHS Markit Purchasing Managers’ Index (PMI), released November 1.
Key findings:
- Modest growth of output and incoming new work
- Employment increased at a slower pace in October
- Cost inflation picked up from September’s 86-month low
- Manufacturers optimistic about growth over the next 12 months
The seasonally adjusted PMI posted 51.2 in October, up from 51.0 in September and above the crucial 50.0 no-change value for the second month running. The latest reading was the highest since February, but it still signalled only a marginal improvement in overall operating conditions.
Faster rates of output and new order growth boosted the headline PMI in October, more than offsetting a slightly weaker contribution from the employment component.
The latest expansion of production volumes was the strongest for eight months, although it was still softer than the long-run survey average. Manufacturers observed a gradual recovery in client demand, especially in domestic markets. At the same time, goods producers noted that subdued global trade conditions remained a drag on growth.
Total new work increased for the second month running in October. In contrast, latest data revealed a renewed drop in export sales, which survey respondents often attributed to intense competitive pressures.
Employment numbers rose again in October, but the rate of expansion was marginal, and slower than it was in September. Some manufacturers suggested that a lack of new work to replace completed projects had constrained staff recruitment at their plants. A marked decline in backlogs of work during October also pointed to a lack of pressure on business capacity.
Manufacturers remained cautious in terms of their input buying during the latest survey period. Softer demand for raw materials helped to alleviate some of the strain on suppliers, with vendor lead-times lengthening only slightly in October.
Latest data signalled a marginal accumulation of pre-production inventories in manufacturing, while stocks of finished goods were depleted for the first time in three months. A number of survey respondents commented on efforts to boost cash flow by streamlining their post-production inventories.
Meanwhile, input cost inflation accelerated from September’s seven-year low. Manufacturers often commented on higher commodity prices in the latest survey period. Factory gate charges nonetheless increased only slightly, with some firms noting that subdued business conditions had held back their pricing power.
Looking ahead, manufacturers in Canada are optimistic overall about their prospects for growth during the next 12 months. The degree of positive sentiment picked up to its highest since July. This was linked to new product launches and, in some cases, hopes of an improvement in global trade conditions.
