Confidence in the future among Canadian manufacturers is edging higher, adding to hopes that the current downturn in the sector is passing its trough. PHOTO courtesy BLM.
Against a backdrop of high inflation, shipping delays, and ongoing economic uncertainty, operating conditions in Canada’s manufacturing sector remained challenging in November, according to the latest data from the seasonally adjusted S&P Global Canada Manufacturing Purchasing Managers’ Index (PMI). But there is hope for improvement in the coming year.
The PMI recorded 49.6 in November. That was up from 48.8 in October to signal a slower rate of contraction. Nonetheless, the PMI has now posted below the 50.0 no-change mark for four months in a row.
Underlying what was an underwhelming PMI reading was another contraction in levels of new orders. Amid reports that market demand was subdued, and negatively impacted by high inflation, November marked the fifth successive month that new orders have fallen. Foreign sales were also down, as global macroeconomic uncertainties continued to weigh on product sales.
Negatively impacted by reduced orders, manufacturing production also fell over the month, but only slightly and to the lowest degree in the current five-month sequence of contraction. Support to production came in the form of an increase in staffing levels as firms sought to address the labour shortages that have at times hampered sector performance in recent months. This enabled companies to make some decent inroads into their backlogs of work, which fell for a fourth month in succession.
On the positive side, November saw a net rise in employment for the first time in four months. November’s survey revealed another sharp rise in overall input prices amid reports that fuel, shipping, and general goods shortages continued to underpin elevated cost inflation. However, with metals such as steel reported to be coming down in price, overall input costs rose at their slowest pace for two years. Similarly, output price inflation also softened, moving down to a level close to September’s 22-month low.
Input goods shortages on global product markets were again reported to have negatively impacted the ability of vendors to deliver goods to manufacturers in November, with average lead times lengthening and extending the current sequence of below par performance to well over three years. However, in a sign of loosening supply-chain pressure, the incidence of delays was the weakest since early 2020 and below the long-run survey average. Sourcing transportation for deliveries remains a problem for both manufacturers and suppliers, however, and this was reported to be a factor leading to a modest rise in warehouse stocks in November.
Finally, manufacturers remained on average upbeat about their prospects for the coming year, although sentiment remained below its historical trend which was linked in many cases to worries over inflation and economic growth. That said, several respondents were confident about a pick-up in the economy over the next 12 months and subsequently planned fresh investment and the start of new projects at their plants. Overall, expectations were their highest since August.
“Confidence in the future has also edged higher, adding to hopes that the current downturn in the sector is passing its trough,” said Paul Smith, Economics Director at S&P Global Market Intelligence.
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