IHS Markit Canada Manufacturing PMI®

Manufacturing PMI hits three-month high, driven by a survey-record rise in employment

Key findings:

  • Slight rebounds in output and new order growth
  • Strongest job creation since survey began eight years ago
  • Input cost inflation eases to nine-month low

Category:

PMI
Monday, December 3, 2018 11:52 am EST

Dateline:

LONDON

Public Company Information:

NASDAQ:
INFO

November data pointed to a positive month overall for the Canadian manufacturing sector, although growth rates for output and new orders remained softer than seen on average in Q3 2018.

LONDON--(BUSINESS WIRE)--Christian Buhagiar, President and CEO at SCMA said:

“Canadian manufacturers enjoyed an overall rebound in growth during November, with business conditions improving at the strongest pace for three months. Stronger rises in output and new orders were supported by the fastest upturn in employment numbers since the survey began in October 2010. The latest robust increase in staffing levels was widely linked to capacity pressures and a subsequent rise in investment spending across the manufacturing sector.

"Survey respondents commented on a boost to sales from improving U.S. economic conditions. However, there were also signs that worldwide trade frictions continued to hold back client demand, with new export order growth still weaker than seen on average in the first half of the year. Canadian manufacturers signalled that business optimism remained close to the lowest seen over the past two years, which many linked to heightened global economic uncertainty."

November data pointed to a positive month overall for the Canadian manufacturing sector, although growth rates for output and new orders remained softer than seen on average in the third quarter of 2018. The most encouraging aspect of the latest survey was a strong and accelerated upturn in job creation, which manufacturers attributed to rising business investment in plant capacity.

Additionally, input cost inflation moderated in November, with lower oil-related prices helping to offset higher costs for imported materials (particularly metals).

The headline seasonally adjusted IHS Markit Canada Manufacturing Purchasing Managers’ Index® (PMI®) registered 54.9 in November, up from 53.9 in October, to signal the sharpest improvement in business conditions since August.

Manufacturing production growth edged up from October's 22-month low, helped by a stronger upturn in new order books. Latest data also signalled a solid rise in export sales, with survey respondents mainly commenting on rising sales to U.S. clients. Nonetheless, the overall rate of new export order growth remained softer than seen in much of the first half of 2018.

Despite a slowdown in demand conditions relative to earlier in the year, manufacturers reported a renewed acceleration of employment growth in November. The latest expansion of payroll numbers was the fastest since the survey began in October 2010. Anecdotal evidence suggested that efforts to alleviate capacity constraints had encouraged greater business investment and additional staff recruitment.

Intense supply chain pressures continued in November, as signalled by another sharp lengthening of delivery times for raw materials. Survey respondents cited low stocks among suppliers and ongoing shipping delays for items imported from Asia. Concerns about raw material availability led to another moderate increase in stocks of purchases across the Canadian manufacturing sector during November. However, latest data signalled the weakest rise in input buying since the end of 2017, partly reflecting more subdued projections for client demand.

Manufacturers remain optimistic overall about their growth prospects for the next 12 months. However, the degree of confidence was up only slightly since October and still among the weakest seen over the past two years. Some firms noted that slower economic growth in Europe had weighed on business sentiment in November.

Meanwhile, there were positive developments in terms of inflationary pressures during November. Input costs increased at the slowest rate since February, which meant that factor gate price inflation remained much softer than the survey-record highs seen during the summer.

Output

Canadian manufacturers revealed a slight rebound in production growth from the 22-month low seen during October. However, the seasonally adjusted Output Index signalled that the latest rise in production volumes remained only modest in comparison those seen on average in the third quarter of 2018.

New Orders

New order books improved in November, which continued the upward trend seen during each month since October 2016. The latest expansion of incoming new work was faster than in the previous month, but still among the weakest seen since the start of 2017. Manufacturing firms noted that global trade frictions had contributed to less favourable underlying demand conditions.

New Export Orders

Export sales growth remained slightly stronger than that seen for overall new orders in November. A number of survey respondents cited improving U.S. economic conditions. The seasonally adjusted New Export Orders Index signalled that export sales growth was faster than in October, but still weaker than seen during the first half of the year.

Backlogs of Work

Backlogs of work continued to accumulate at a much slower rate than the survey-record pace seen in the middle of the year. The marginal increase in work-in-hand (but not yet completed) was mainly attributed to capacity pressures and supply chain disruptions during the latest survey period.

Stocks of Finished Goods

November data pointed to a stabilisation of finished goods inventories across the manufacturing sector, which ended a seven-month period of decline. Survey respondents noted that softer demand growth in recent months had alleviated downward pressure on post-production stocks.

Employment

In contrast to the relatively subdued growth patterns recorded for output and new work, latest data signalled an accelerated rise in payroll numbers at manufacturing companies. The seasonally adjusted Employment Index signalled the fastest rate of job creation since the survey began in October 2010. Anecdotal evidence suggested that greater investment in plant capacity continued to drive up staffing levels in November.

Quantity of Purchases

The seasonally adjusted Quantity of Purchases Index signalled another solid expansion of input buying at manufacturing firms during November. That said, the rate of growth eased for the fourth month running to its weakest since December 2017. Some panel members noted that concerns about the demand outlook had weighed on purchasing activity during the latest survey period.

Suppliers’ Delivery Times

Manufacturers signalled another steep lengthening of delivery times for their purchases from vendors in November. The seasonally adjusted Suppliers' Delivery Times Index has posted below the neutral 50.0 threshold for almost five-and-a-half years. Survey respondents widely commented that shipping delays and stretched supply chain capacity had led to worsening raw material availability in November.

Stocks of Purchases

Pre-production inventories were accumulated for the thirteenth consecutive month in November, although the rate of expansion remained only modest. Manufacturers reporting an increase in their stocks of purchases generally cited efforts to mitigate against delays in the receipt of raw materials from suppliers.

Input Prices

Input cost inflation eased a nine-month low in November and remained much softer than the peak levels seen in the middle of 2018. Higher cost burdens were mainly linked to exchange rate factors, alongside the pass through of U.S. tariffs on steel and aluminium. That said, lower oil-related prices helped to moderate the overall rate of input cost inflation in November.

Output Prices

Mirroring the trend for input costs, latest data signalled a further slowdown in output charge inflation from the peaks seen earlier this year. The seasonally adjusted Output Prices Index remained well above the the 50.0 no-change mark, but indicated the weakest rate of factory gate price inflation since March.

Future Output

Business optimism picked up slightly in November, but remained among the lowest seen over the past two years. Expectations of rising production were linked to rising business investment and forecasts of improving demand from U.S. clients. However, manufacturers also noted that global trade frictions and softer economic growth in Europe were factors that had weighed on business confidence.

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IHS Markit
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or
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Lynne Coles 416-542-3860
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