New export orders decreased for the first time in a year
Growth in the Canadian manufacturing sector showed signs of easing in October, with both output and new orders rising at weaker rates. New export orders decreased for the first time in a year.
Disruption caused by Hurricane Harvey in the US continued to impact the sector, leading to longer suppliers’ delivery times and increased costs for raw materials.
The seasonally adjusted IHS Markit Canada Manufacturing Purchasing Managers’ Index (PMI) dipped to 54.3 in October from 55.0 in September. Although continuing to signal stronger business conditions at the start of the fourth quarter, the latest improvement in the health of the sector was the weakest since January.
Both output and new orders rose at slower rates during October. Production increased for the twelfth successive month, but at the weakest pace since January. Where output rose, this was mainly linked to higher new orders.
Total new business expanded for the thirteenth month running. In contrast, new export orders declined, the first reduction for a year. That said, the rate of contraction was fractional.
Data pointed to pressure on capacity in the manufacturing sector, with backlogs of work rising for the sixth time in the past seven months.
In response to pressure on capacity, firms stepped up their hiring activities in October. Employment rose at a marked pace, extending the current sequence of job creation to 13 months. In the meantime, firms used inventories to help fulfill orders. As a result, stocks of finished goods decreased solidly again.
The supply of raw materials continued to be impacted by the effects of Hurricane Harvey in the US. Resulting shortages of raw materials led to a substantial lengthening of suppliers’ delivery times and one that was surpassed only by the survey record in March 2011.
Supply shortages fed through to increases in the cost of raw materials. Input prices rose sharply, with the rate of inflation unchanged from September. Manufacturers subsequently passed on some of these price rises to their clients, with charges up solidly again. Purchasing activity continued to rise in October, but at the weakest pace in 2017 so far as some firms opted to use existing inventories to support output growth. As a result, stocks of purchases decreased at the fastest pace since January 2016.
Firms remained confident that output will increase over the coming year, with sentiment little-changed from September.