July manufacturing conditions strengthen: PMI

Index from PMAC and RBC shows expansion reflected new order growth that month

August 3, 2011
by Purchasing b2b staff

TORONTO: The pace of new order growth in the Canadian manufacturing sector sped up in July, according to the RBC Canadian Manufacturing Purchasing Managers Index. The index is conducted in association with financial information services company Markit and the Purchasing Management Association of Canada (PMAC).

The index showed business conditions in Canada’s manufacturing sector improved further during July. The expansion rate stayed solid and was slightly faster than in June. The latest improvement largely reflected further new order growth and a concurrent rise in output. But production increased only modestly during the latest survey period. Meanwhile, inflationary pressures eased further, with the rate of input price inflation the slowest in seven months.

At 53.1, up from 52.8 in June, the headline RBC PMI—a composite indicator designed to provide a single-figure snapshot of the health of the manufacturing sector—signaled a solid improvement in operating conditions within Canada’s manufacturing sector in July. The PMI has now posted above the 50.0 no-change threshold that separates growth from contraction for ten consecutive months.

“The uptick in the new orders index that indicated a solid rate of expansion, coupled with improved business conditions across the country, bode well for Canada’s manufacturing sector overall,” said Paul Ferley, assistant chief economist, RBC. “However, modest gains in production and the soaring loonie may offset some of the momentum in the sector as we move into the second half of the year.”

The survey also tracks changes in output, new orders, employment, inventories, prices and supplier delivery times. Index readings above 50.0 signal expansion from the previous month, readings below 50.0 indicate contraction.

Key findings from the July survey include:

  • Volumes of new work increased solidly;
  • Employment growth continued, albeit at slowest pace since November 2010; and
  • Rate of input price inflation eased to seven-month low.

The latest expansion in the Canadian manufacturing sector generally reflected further new order growth. Notably, the rise in new work intakes was solid and faster than that recorded in June. A number of firms commented on new client wins in both the Canadian and international markets in July.

In light of greater new order requirements, Canadian manufacturers increased production during the latest survey period. That said, output levels rose only modestly and at a broadly similar rate to that registered in June. Firms also depleted their stocks of finished goods to supplement increased production in July. The amount of outstanding work recorded by firms operating in the Canadian manufacturing sector decreased during July. However, backlogs of work were depleted only slightly.

The number of people employed in manufacturing increased in July. Almost 18 percent of surveyed firms hired additional staff and generally linked employment growth to larger new order volumes. That said, the job creation rate eased to the slowest since November 2010.

Monitored companies passed on part of their greater cost burdens to clients by raising factory gate prices in July. Although output charges rose solidly and at a slightly faster rate than June, growth remained notably weaker than the overall rise in cost burdens.

Regional highlights include:

  • PMI data signaled business conditions in all four broad regions improved in July;
  • Quebec recorded the slowest increase in new order growth;
  • Manufacturing companies based in Alberta and British Columbia reported the strongest monthly rise in staffing levels; and
  • The fastest rate of input price inflation was registered in Quebec, while survey respondents in Ontario raised their output charges to the greatest extent in July.