Weakness in production and new orders is keeping Canadian manufacturing down for five straight months now. PHOTO courtesy Hypertherm.
Canadian manufacturing remained in “mild contraction” in December with the seasonally adjusted S&P Global Canada Manufacturing Purchasing Managers’ Index (PMI) registering 49.2 in December, down from 49.6 in November and below the 50.0 no-change mark for a fifth successive month.
“This marked the longest sequence of decline since a seven-month run from August 2015 to February 2016. Once again weakness was primarily centred on production and new orders. Both fell for a sixth month in succession, with output down to the greatest degree since August,” S&P Global Canada states.
Inventories were drawn down as firms sought to realign stocks with current production requirements. Delivery delays continued, and again contributed to inflationary pressures which strengthened over the month.
Conversely, new orders declined at the weakest pace since July, through the rate of contraction was again solid. Firms widely commented that market demand was subdued as the corrosive effects on sales of inflation and uncertainty persisted. On the inflation front, prices paid for inputs continued to increase at an elevated rate, and one that was faster than November’s two-year low. Similarly, firms chose to pass through a noticeable proportion of these higher costs to clients via a rise in their own charges, which also increased at a stronger pace in December. Panellists continued to attribute rising prices to elevated transportation costs, and generally tight supply conditions. Although not worsening to the same degree seen earlier in the year, average lead times for the delivery of inputs again deteriorated noticeably.
This was despite another solid reduction in purchasing activity as firms reacted to weak trends in output and new orders by lowering their buying of inputs.
“This was also linked by panellists to ongoing efforts in reducing costs related to the storing of excess inventory. Both stocks of preproduction and post-production goods were reported to be lower during December,” S&P Global Canada notes.
Against the backdrop of underwhelming performances in both production and new orders, manufacturers perhaps somewhat surprisingly added to their staffing levels (albeit slightly) during December. Growth was linked in part to long-held vacancies at plants reflect of general difficulties in recruiting staff. Moreover, firms were also on average upbeat about the future, with confidence in the outlook remaining in positive territory amid hopes of a pick-up in sales, demand, and the broader economy in the coming months.
“However, worries persist about the negative impact that inflation could have on demand, whilst some firms signal fears of recession. Subsequently, overall sentiment remained below its historical average heading into 2023,” S&P Global Canada states.