New orders fall for first time since February in purchasing managers' index
October 3, 2016
by PurchasingB2B Staff
TORONTO—Canadian manufacturers signalled another slowdown in growth momentum during September, with production volumes expanding at the weakest pace for seven months. The latest survey also pointed to a renewed decline in overall new business volumes, partly driven by a sharper drop in export sales. Subdued demand conditions contributed a slight fall in employment numbers and a greater degree of inventory drawdown in September.
At 50.3 in September, down from 51.1 in August, the Markit Canada Manufacturing Purchasing Managers’ Index™ (PMI™) pointed to only a marginal improvement in overall business conditions and the slowest pace of recovery since the upturn began in March. Lower new order volumes and reduced payroll numbers were the main negative influences on the headline index, alongside the sharpest drop in pre-production inventories since the start of 2016.
“Business conditions remained challenging for Canadian manufacturers in September, partly due to subdued demand for exports,”Cheryl Farrow, president and chief executive officer, SCMA. “This contributed to Canada’s first fall in new orders for seven months and the slowest upturn in production since the recovery began in March. Although Western Canada bucked the trend and did see its first growth in new orders since January 2015. Manufacturers responded to the softer demand by drawing down inventories and cutting back on staff hiring during September.”
September data signalled only a marginal increase in manufacturing production, and the rate of expansion continued to soften from the 11-month peak recorded in May. Survey respondents noted that lower levels of incoming new work and renewed efforts to streamline inventories had acted as brakes on output growth at their plants.
Manufacturers indicated a drop in new work for the first time since February, although the pace of decline was only fractional. Anecdotal evidence cited generally subdued client demand and lower spending on investment goods in particular. Moreover, reduced levels of new business from abroad were recorded for the third month in a row, and the rate of contraction was one of the fastest seen since early-2015.
Signs of a slowdown in client spending resulted in more cautious inventory policies during September. Reflecting this, stocks of finished goods were depleted for the sixth consecutive month and the decline in pre-production inventories was the sharpest recorded since the start of the year. Manufacturers also pointed to lower staffing levels in September, which ended a six-month period of sustained jobs growth. Survey respondents mainly commented on the non-replacement of voluntary leavers. This contributed to a further rise in unfinished work, with the rate of backlog accumulation the steepest since October 2014.
Input buying decreased for the third successive month in September, but this did not prevent a further marked deterioration of vendor performance. Moreover, latest survey data indicated that supplier lead-times lengthened to the greatest degree since June, which manufacturers linked to low stocks and shipping delays.
Meanwhile, input cost inflation was the slowest recorded so far in 2016. Reduced cost pressures allowed for a return to falling factory gate prices and, although only marginal, the latest drop in output charges was the fastest since December 2015.
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“September’s survey data highlight another month of disappointingly weak manufacturing output growth, and the renewed drop in new orders raises concerns that this soft patch may continue into the final quarter,” said Tim Moore, senior economist at survey compilers IHS Markit. “Sluggish external demand appears to have held back new business gains across the manufacturing sector, in contrast to the exports outperformance at the start of 2016. At the same time, backlogs of work accumulated at the fastest pace for almost two years, which is a sign that temporary factors acted as a headwind to production growth during September.”