January registered modest growth in both output and new orders, according to the S&P Global Canada Manufacturing PMI. PHOTO courtesy TRUMPF.
Canada’s manufacturing economy registered a return to modest growth during January, underpinned by gains in both production and new orders, according to the S&P Global Canada Manufacturing PMI.
Jobs were also added, whilst there were some reports that input goods and labour availability was stabilising after a prolonged period of shortages. Inflationary pressures also continued to soften over the month, although worries over recession persist.
“The Canadian manufacturing economy began 2023 on a firmer footing than at the end of last year, registering some welcome, albeit modest, growth in both output and new orders. Anecdotal evidence also pointed to some stabilisation in input and staff supply. The emerging dissipation of these factors are heartening given the way they have hobbled manufacturing sector performance at various points since the start of the pandemic,” says Paul Smith, Economics Director at S&P Global Market Intelligence.
The seasonally adjusted S&P Global Canada Manufacturing Purchasing Managers’ Index (PMI) recorded 51.0 in January, up from 49.2 at the end of 2022. Latest data marked the first time that the index has recorded above the 50.0 no-change mark that separates growth from contraction since last July.
There were concurrent increases in both manufacturing output and new orders during January. Companies reported that market demand was improving, and that the marginal increase in sales seen at the start of the year had encouraged firms to raise their output. However, any growth primarily emanated from the domestic market as new export orders fell for an eighth month in a row. Underlying global demand was reported to have remained soft, according to panellists.
Firms remained suitably encouraged to hire additional workers. Employment growth was modest, but nonetheless the best recorded by the survey since last July. There was evidence that jobs were added to bolster productive capabilities. Positive projections for growth in the months ahead were also noted as confidence about the future remains in positive territory. Firms are hoping that market demand and input supply will continue to stabilise over the months ahead. Although average lead times for the delivery of inputs lengthened again in January, amid residual supply challenges in shipping freight services and border delays, several firms commented that vendors were finally getting on top of the backlog difficulties that have been so prominent since the start of the pandemic.
Nonetheless, expectations for output in the year ahead did slip a little in January, falling to a three-month low as firms worry about the possibility of recession in the months ahead. This helped explain why manufacturers continue to take a cautious approach to purchasing activity, which fell for a sixth successive month (albeit to the lowest degree in the current sequence). Firms noted a preference to lean on existing inventories wherever possible, and this meant that stocks of inputs fell again at the start of 2023. Lower purchasing activity also helped to relieve supply pressure on vendors and ensured that input price inflation resumed the steady downward trend seen throughout much of 2022. Overall, input prices rose markedly – reflective of some persistent, and somewhat systematic, price inflation – but at their lowest pace for nearly two-and-a-half years. Output charges also increased at one of the slowest rates in the past two years during January.
“We must remember that growth is modest, and fears of the negative impacts on output of recession persist. For these reasons, confidence overall remains below par and firms retain a cautionary approach to their purchasing activities,” Smith reasons.
