Strong expansion in new orders pushed the Canadian manufacturing sector to another solid improvement in February, according to the most recent report from IHS Markit.
The IHS Markit Canada Manufacturing Purchasing Managers’ Index (PMI) registered 54.8 in February, up from 54.4 in January, indicating a strong improvement in overall operating conditions.
“Latest PMI data highlights another solid improvement in the overall health and resilience of Canada’s manufacturing sector. An improving domestic demand picture, greater purchasing activity and a sustained period of employment suggests firms expect greater output in the months ahead,” said Shreeya Patel, Economist at IHS Markit.
“Meanwhile, foreign demand for Canadian goods was relatively weak as international markets continue to face business closures amid restrictions. Nevertheless, Canada’s manufacturing sector extended its uninterrupted sequence of expansion to eight months. Moreover, firms remain widely upbeat about their growth prospects with vaccination news underpinning optimism during February.”
The boost in demand, along with a rise in backlogs, encouraged firms to add to workforces, while sustained growth in output led to another increase in purchasing activity.
However, the data shows intense supply chain pressures which are having a marked impact on delivery times. Restrictions put in place to curb the spread of COVID-19, are causing continued material shortages and transportation delays, which are hitting manufactures in the form of higher costs through supplier surcharges.
It was domestic demand that forced another solid increase in new orders. However, IHS Markit says foreign demand for Canadian manufactured goods rose only fractionally at the start of the year, as pandemic restrictions continued to hamper exports.
Output volumes rose along with demand, although the rate of expansion was the lowest in eight months. Production schedules were supported by higher new order volumes, although pandemic restrictions again weighed on output.
Manufacturers added to their workforces for the eighth month in a row, with the overall rate of job creation higher than January’s data.
Data suggests that transportation bottlenecks and stock shortages led to deterioration in vendor performance, with lead times longer than at any point since Q4 2010.
Intense cost pressures persisted, with the rate of input price inflation accelerating in February, with higher material (mainly metals) and transportation costs to blame.
However, overall sentiment regarding production over the next 12 months was upbeat, with the degree of optimism reaching a five-month high with hopes of reduced virus-related restrictions.
