Strong growth of manufacturing production sustained in May

Headline PMI eases only slightly from April’s six-year peak

June 1, 2017
Purchasing B2B

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May data signalled another robust improvement in business conditions across the Canadian manufacturing sector, which continued the strong trend seen during 2017 to date. Output, new orders and employment all increased markedly, although at slightly slower rates than in April.

An ongoing recovery in client demand led to greater input buying and the joint-fastest upturn in pre-production inventories since May 2012. However, the latest survey also revealed intense supply chain pressures, as lead-times from vendors lengthened to the largest extent for just over three years.

The seasonally adjusted IHS Markit Canada Manufacturing Purchasing Managers’ Index (PMI) posted 55.1 in May, down only slightly from April’s six-year peak of 55.9. As a result, the average reading for the second quarter of 2017 so far (55.5) points to the strongest improvement in business conditions since Q1 2011. The headline index has registered above the 50.0 no-change value in each month since March 2016.

Canadian manufacturers recorded another solid upturn in their production volumes in May, although the rate of expansion moderated further from March’s recent peak. Survey respondents commented on a supportive economic backdrop and greater willingness to spend among clients, particularly those in the energy sector.

New business levels increased sharply in May, despite the rate of growth easing to a four-month low. Export sales provided a boost to overall workloads, with the latest increase in new orders from abroad the strongest since November 2014. A number of manufacturers commented on rising demand from U.S. clients.

Greater workloads led to pressures on operating capacity in May, as highlighted by a further rise in backlogs of work across the manufacturing sector. Although only modest, the latest increase in unfinished business was the most marked since September 2016. This encouraged staff recruitment in May, as manufacturers reported one of the strongest rates of job creation for five-and-a-half years.

Meanwhile, supply chain bottlenecks and low stocks among vendors resulted in longer delivery times during May. The latest deterioration in supplier performance was the steepest since March 2014. Some manufacturers sought to accumulate greater pre-production inventories, which further boosted purchasing activity in May.

Strong demand for manufacturing inputs (especially metals), as well as rising prices for imported raw materials, meant that input cost inflation held close to April’s three year high. Efforts to alleviate some of the squeeze on operating margins led to a rise in factory gate prices for the seventh month running.

Regional highlights:

  1. All regions experienced an improvement in manufacturing sector business conditions
  2. Quebec continued to outperform in terms of overall new business growth
  3. Ontario recorded the sharpest rise in new export sales
  4. Job creation was strongest in Alberta & B.C.