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Purchasing managers’ index dips to a nine-month low in January

Output and new business growth were both the weakest for five months last month


February 4, 2014
by PurchasingB2B Staff

January data pointed to a setback for the manufacturing sector at the start of 2014, according to the RBC Canadian Manufacturing Purchasing Managers’ Index (RBC PMI). 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.

Output and new business growth were both the weakest for five months in January. Meanwhile, staffing levels were reduced for the first time in two years and manufacturers responded to the moderation in new order growth by cutting their input buying and pre-production inventory levels during the latest survey period.

Adjusted for seasonal influences, the headline RBC PMI dipped from 53.5 in December to 51.7 in January. Although the index remained above the neutral 50.0 value, the latest reading pointed to the slowest overall improvement in business conditions since April 2013. All five components of the RBC PMI made a weaker contribution to the headline index than in the previous month, led by slower expansions of output and new business volumes.

“Canada’s manufacturing sector continued to grow in January, albeit at slower pace than December, registering at 51.7, down from 53.5,” said Craig Wright, senior vice president and chief economist, RBC. “Underlying economic conditions – such as stronger growth in the U.S. economy and a weaker Canadian dollar – remain supportive for the outlook for domestic manufacturing in the period ahead.”

The headline RBC PMI reflects changes in output, new orders, employment, inventories, prices and supplier delivery times. Key findings from the January survey include:

  • Slowest improvement in business conditions since April 2013;
  • Latest data indicates slower rates of output and new order growth; and
  • Employment levels fall for first time in two years.

Production levels in the Canadian manufacturing sector increased for the ninth successive month, but the rate of growth was the least marked since last August. Anecdotal evidence generally suggested that slower output growth reflected softer rises in demand, especially from domestic sources.

January data pointed to a moderation in total new order growth, despite an acceleration in export sales. The latest survey highlighted that new orders from abroad increased at the most marked pace since September 2013, with some manufacturers noting improved spending patterns in developed markets.

Weaker growth of overall new work contributed to a drop inunfinished business for the second month running, although the rate of decline remained only slight. Meanwhile, a general lack of pressure on operating capacity led to a marginal decrease in manufacturing employment levels during January. The reduction in staffing levels was the first for two years.

Manufacturers in Canada responded to softer new business growth by cutting their stocks of purchases at the start of 2014. Latest data signalled the joint-fastest decline in pre-production inventories for two years.

In line with the drop in input stocks, volumes of purchasing activity across the manufacturing sector decreased for the first time in ten months. However, average delivery timesfrom suppliers continued to lengthen during January. Worsening vendor performance has been recorded in each month since July 2013.

Average cost burdens increased in the Canadian manufacturing sector during January, which extended the current period of continuous input price inflation to one-and-a-half years. Latest data indicated a robust and accelerated pace of cost inflation, with the overall rise in input prices the fastest since April 2012. Meanwhile, prices charged by manufacturers in Canada continued to increase in January, and the rate of inflation reached a three-month high.

Regional highlights include:

  • All four regions recorded higher production levels, led by Ontario.
  • Quebec registered the slowest rise in new order volumes.
  • Jobs growth was largely confined to Alberta &British Columbia.
  • Robust rises in cost burdens were posted in all four regions in January

“Canadian manufacturing growth stepped down a gear at the start of 2014, as highlighted by the slowest rises in production and new orders for five months,” said Cheryl Paradowski, president and chief executive officer, SCMA. “Softer gains in new work resulted in the first overall drop in employment for two years. However, the latest figures suggest resilient export sales across the manufacturing sector as new business from abroad picked up at the sharpest rate since last September.