IHS Markit Canada Manufacturing PMI®
Slowest expansion of manufacturing production since December 2016
- Canadian manufacturers signal softer output growth in January
- Slowest rise in new work for over two years
- Input prices inflation continues to moderate at start of 2019
LONDON--(BUSINESS WIRE)--Manufacturers in Canada reported another loss of momentum at the start of 2019, with output and new business growth easing further from the peaks seen last summer. Export sales remained particularly subdued in January, with this index pointing to a marginal fall in new work from abroad.
On a more positive note, manufacturing companies signalled a robust pace of job creation and slower input cost inflation during the latest survey period.
The headline seasonally adjusted IHS Markit Canada Manufacturing Purchasing Managers’ Index® (PMI®) eased from 53.6 in December to 53.0 in January. Although still above the crucial 50.0 no-change threshold, the latest reading pointed to the weakest improvement in overall business conditions since December 2016.
Mirroring the trend signalled by the headline PMI, the latest survey pointed to the slowest rise in production volumes for 25 months during January. Anecdotal evidence suggested that a general slowdown in client demand had held back output growth at the start of 2019.
January data pointed to only a moderate rise in new work received by manufacturing companies. The rate of new business growth eased for the second month running and was the weakest since October 2016. Moreover, new export orders fell in January, albeit only slightly. Survey respondents noted that ongoing global trade frictions had dampened business confidence and contributed to more cautious spending patterns among clients.
Backlogs of work increased for the fourth month running in January. Manufacturers attributed rising volumes of unfinished work to capacity pressures and, in some cases, longer lead-times from suppliers.
A strong rate of employment growth was maintained across the manufacturing sector in January. Companies reporting a rise in their staffing levels generally cited long-term business expansion plans and hopes of a rebound in demand over the course of 2019.
Latest data signalled an improvement in business confidence regarding the year ahead outlook for production. The degree of positive sentiment was the highest recorded since August 2018. Some manufacturers commented on hopes that global trade conditions would start to improve. Survey respondents also generally commented on positive expectations in relation to demand from US markets.
Christian Buhagiar, President and CEO at SCMA said:
“January data highlights that the manufacturing sector got off to a slow start in 2019, with the loss of momentum centred on the weakest increase in new business volumes for more than two years. Survey respondents noted that global trade frictions and subdued business confidence among clients had once again acted as a break on client demand.
“There were some signs that manufacturers expect the slowdown in manufacturing conditions to prove temporary, as signalled by the robust rate of job creation reported in January. Optimism regarding the business outlook also improved at the start of 2019, with output growth projections now the strongest since last August. Manufacturers attributed their positive expectations to planned expansions of production capacity and hopes of strengthening demand in US markets."
Output growth continued to slow in January and remained much weaker than the seven-and-a-half year peak seen in August 2018. The seasonally adjusted Output Index signalled only a moderate rise in manufacturing production, with the latest upturn the smallest recorded since the end of 2016.
Survey respondents commented on a general slowdown in client demand, particularly in export markets.
Mirroring the trend for production volumes, latest data signalled a slower rise in new work than at the end of 2018. Moreover, the seasonally adjusted New Orders Index was the lowest recorded since October 2016.
Manufacturers noted more subdued client confidence and lower export demand in January.
New Export Orders
The seasonally adjusted New Export Orders Index registered below the 50.0 no-change threshold for the second month running in January, to signal another marginal fall in new work from abroad. The latest reading was the lowest since November 2017.
Reports from survey respondents suggested that greater risk aversion among clients had held back demand. Some firms also linked lower export sales to a soft patch for the automotive sector.
Backlogs of Work
Manufacturers reported an increase in work-in-hand (but not yet completed) for the fourth successive month in January. Greater backlogs of work were linked to capacity pressures and supply chain delays.
However, the seasonally adjusted Backlogs of Work Index signalled only a marginal accumulation of outstanding business during the latest survey period.
Stocks of Finished Goods
Post-production inventories fell slightly in January, but the rate of contraction was slower than seen on average in the second half of 2018. Companies reporting a decrease in their stocks of finished goods generally cited tighter inventory management strategies at their plants.
The seasonally adjusted Employment Index remained well above the neutral 50.0 value in January, which signalled a further robust expansion of staffing levels across the manufacturing sector.
Anecdotal evidence suggested that rising workforce numbers was linked to the need for greater production capacity and the launch of new products.
Quantity of Purchases
Purchasing activity increased at the weakest rate for 14 months in January. The seasonally adjusted Quantity of Purchases Index signalled only a modest upturn in input buying.
Manufacturers noted that softer new order growth had resulted in more cautious purchasing decisions at the start of 2019.
Suppliers’ Delivery Times
Longer delivery times from vendors were reported by manufacturers in January, which continued the downturn in supplier performance recorded since July 2013. However, the seasonally adjusted Suppliers' Delivery Times Index pointed to the least marked lengthening of lead times for 21 months in January.
Survey respondents widely commented on a lack of spare logistics capacity and ongoing delays at ports.
Stocks of Purchases
Adjusted for seasonal influences, the Stocks of Purchases Index signalled another moderate increase in pre-production stocks held by manufacturing companies. The rate of inventory accumulation was the fastest for four months in January.
Some panel members reported efforts to build safety stocks of components in response to longer lead-times from vendors.
January data pointed to another sharp rise in average cost burdens at manufacturing companies, although the rate of inflation eased to a 17-month low. Some firms suggested that softer global demand for raw materials had helped to hold back input cost inflation. Higher cost burdens were linked to trade tariffs, rising prices for steel and exchange rate depreciation against the US dollar.
Manufacturers reported another strong rise in their factory gate charges at the start of 2019. The rate of output price inflation accelerated from the nine-month low seen last December. A number of survey respondents noted that increased cost burdens from trade tariffs on raw materials (particularly steel-intensive items) had been passed on to clients in January.
The Future Output Index rebounded slightly from the 34-month low seen in December. Moreover, the latest reading signalled the most optimism about the near-term business outlook for five months.
Manufacturers commented on hopes of an improvement in global trade conditions, planned expansion in US markets and successful investments in additional business capacity.
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