TORONTO, June 1, 2016 /CNW/ - May data from the RBC PMI highlighted that Canadian manufacturers experienced another modest upturn in overall business conditions in May, which marked three months of sustained improvement.
Output growth expanded at its fastest pace for almost one year, but the latest survey pointed to slightly weaker rates of new business and employment growth. There were also signs of pressure on operating margins as input cost inflation accelerated in May, while output charges were broadly unchanged.
A monthly survey, conducted in association with Markit, a leading global financial information services company, and the Supply Chain Management Association (SCMA), the RBC PMI offers a comprehensive and early indicator of trends in the Canadian manufacturing sector.
At 52.1 in May, the seasonally adjusted RBC Canadian Manufacturing PMI was above the neutral 50.0 mark and only fractionally lower than the 16-month high of 52.2 recorded in April. As a result, the headline index indicated another moderate improvement in business conditions across the manufacturing sector, mainly supported by greater levels of output, new business and employment in May. Moreover, the average PMI reading so far this quarter indicates the strongest growth momentum since Q4 2014.
"The latest data reflects mixed results in the manufacturing sector during May. While production and new orders are up, the fall in export sales raises questions about Canada's transition to a more export-led expansion." said Craig Wright, senior vice-president and chief economist, RBC. "Quebec manufacturing was a bright spot and Ontario remains the best performing in terms of export and jobs growth, but B.C. and Alberta continued to decline and the forest fires in Fort McMurray, Alberta are expected to put further pressure on both the manufacturing sector and overall economic indicators in Alberta."
The headline RBC PMI reflects changes in output, new orders, employment, inventories and supplier delivery times.
Key findings from the May survey included:
- Sharpest increase in production volumes since June 2015
- New order growth loses momentum amid slight fall in export sales
- Rate of job creation moderates from 16-month high recorded in April 2016
May data signalled a solid expansion of production volumes, with the latest rise the fastest since June 2015. Survey respondents noted that greater new business volumes and improved confidence regarding the general economic outlook had underpinned the increase in output levels. New order volumes picked up for the third month running in May, which mirrored the trend recorded for production volumes across the manufacturing sector. However, the latest survey signalled a slight loss of momentum from the 16-month high seen during April.
Anecdotal evidence suggested that new product launches and gradually improving demand conditions had supported manufacturing sales, while subdued investment spending and cautious inventory management among clients remained key growth headwinds. Export sales were also a drag on overall new business intakes across the manufacturing sector in May. Although only marginal, the reduction in new work from abroad was the first since October 2015.
Manufacturing firms boosted staffing levels in May, as has now been the case for the past three months. Another increase in staff recruitment helped to drive a modest reduction in work-in-hand (but not completed) across the manufacturing sector, thereby extending the current period of backlog depletion to 18 months running.
The latest survey pointed to cautious inventory policies at manufacturing firms in May. Stocks of finished goods declined at the fastest pace since January, while pre-production inventories fell despite higher volumes of input buying. Moreover, lead-times from vendors lengthened amid reports of capacity cuts and reduced stocks among suppliers.
Meanwhile, input cost inflation accelerated over the month, which survey respondents mainly linked to higher steel prices and the weak exchange rate. Factory gate charges were nonetheless broadly unchanged in May, which firms linked to weak pricing power and intense competitive pressure.
Regional highlights include:
- Manufacturing business conditions improve in all regions except Alberta & B.C.
- Quebec records the steepest upturn in production, with output growth reaching a 21-month high
- Ontario experiences softer growth momentum than in April, but remains the best performing region in terms of export sales and jobs growth
"The good news is Canada's manufacturing sector is experiencing its strongest period of growth for around a year- and-a-half. Greater workloads have boosted production and jobs through the second quarter of 2016. Quebec had a good month, recording its best overall performance since 2012." said Cheryl Farrow, president and chief executive officer, SCMA. "There was a slight loss of momentum in May, as a dip in exports and weak capital spending dampened new business growth for Canada's manufacturers. The recovery in demand put Canada's supply chains under pressure last month with evidence of longer lead times and depleted stocks of raw materials."
The report is available at www.rbc.com/newsroom/pmi.
Notes to Editors:
The RBC Canadian Manufacturing PMI™ Report is based on data compiled from monthly replies to questionnaires sent to purchasing executives in over 400 industrial companies. The panel is stratified by company workforce size and by Standard Industrial Classification (SIC) group, based on industry contribution to Canadian GDP.
Survey responses reflect the change, if any, in the current month compared to the previous month based on data collected mid-month. For each of the indicators the 'Report' shows the percentage reporting each response, the net difference between the number of higher/better responses and lower/worse responses, and the 'diffusion' index. This index is the sum of the positive responses plus a half of those responding 'the same'.
Diffusion indexes have the properties of leading indicators and are convenient summary measures showing the prevailing direction of change. An index reading above 50 indicates an overall increase in that variable, below 50 an overall decrease.
The RBC Canadian Manufacturing Purchasing Managers' Index™ (RBC PMI™) is a composite index based on five of the individual indexes with the following weights: New Orders - 0.3, Output - 0.25, Employment - 0.2, Suppliers' Delivery Times - 0.15, Stock of Items Purchased - 0.1, with the Delivery Times Index inverted so that it moves in a comparable direction.
The Purchasing Managers' Index (PMI) survey methodology has developed an outstanding reputation for providing the most up-to-date possible indication of what is really happening in the private sector economy by tracking variables such as sales, employment, inventories and prices. The indices are widely used by businesses, governments and economic analysts in financial institutions to help better understand business conditions and guide corporate and investment strategy. In particular, central banks in many countries (including the European Central Bank) use the data to help make interest rate decisions. PMI surveys are the first indicators of economic conditions published each month and are therefore available well ahead of comparable data produced by government bodies.
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About Supply Chain Management Association
As the leading and largest association in Canada for supply chain management professionals, the Supply Chain Management Association (SCMA) is the national voice for advancing and promoting the profession. SCMA sets the standard of excellence for professional skills, knowledge and integrity and was the first supply chain association in the world to require that all members adhere to a Code of Ethics.
With nearly 8000 members working across the private and public sectors, SCMA is the principal source of supply chain training, education and professional development in the country. Through its 10 Provincial and Territorial Institutes, SCMA grants the Supply Chain Management Professional (SCMP) designation, the highest achievement in the field and the mark of strategic supply chain leadership.
SCMA was formed in 2013 through the amalgamation of the Purchasing Management Association of Canada and Supply Chain and Logistics Association of Canada. With a combined history of more than 140 years, today the association embraces all aspects of strategic supply chain management, including: purchasing/procurement, strategic sourcing, contract management, materials/inventory management, and logistics and transportation. For more information, please visit SCMA.com.
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