Strong manufacturing growth maintained in July: PMI

The latest IHS Markit Canada PMI see the sharpest rise in factory gate prices since the survey began in October 2010

August 1, 2018
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Canadian manufacturers recorded robust rises in output, new orders and employment during July, thereby signalling another marked improvement in overall business conditions across the sector. However, the latest survey also signalled a steep and accelerated rise in prices charged by manufacturing firms, which was widely linked to the impact of US trade tariffs on steel and aluminium. At the same time, strong demand for raw materials and transportation bottlenecks led to a survey-record lengthening of delivery times from suppliers.

At 56.9 in July, the seasonally adjusted IHS Markit Canada Manufacturing Purchasing Managers’ Index (PMI) fell only slightly from June’s survey-record high of 57.1 and remained indicative of a strong improvement in overall business conditions. The headline index was supported by the fastest rise in production volumes since March 2017, which partially offset softer rates of new business growth and job creation compared to the previous month.

Strong output growth was linked to robust order books and ongoing efforts to boost operating capacity across the manufacturing sector. Higher levels of production have been recorded in each month since November 2016.

July data pointed to a robust increase in new work received by manufacturing firms, with the rate of expansion only slightly softer than June’s four-and-a-half year peak. The slowdown partly reflected a weaker contribution from export order growth, which was the least marked since March. Survey respondents noted that rising transport costs and, in some cases, output price increases related to trade tariffs had acted as a headwind to export sales growth.

Manufacturers are upbeat about the outlook for production levels at their plants in the next 12 months. The degree of positive sentiment eased fractionally since June, but remained broadly in line with the average so far in 2018. Resilient business confidence and another solid rise in backlogs of work underpinned sustained employment growth in July.

Intense supply chain pressures continued in July, as highlighted by the greatest lengthening of lead-times from vendors since the survey began in October 2010. Manufacturers again sought to compensate for worsening supplier performance by boosting their stocks of inputs.

Input cost pressures eased only slightly from the seven-year peak seen in June. Survey respondents mainly cited the inflationary impact of trade tariffs for metal products, alongside rising fuel prices. Surcharges for raw materials were passed on to clients in July, with factory price inflation accelerating to a survey-record high.

Regional highlights include:

  • Robust upturn in manufacturing conditions seen across all regions, led by Quebec;
  • Quebec experienced the greatest lengthening of suppliers’ delivery times in July; and
  • Manufacturers in Alberta & BC recorded the sharpest rise in average cost burdens, as well as the greatest degree of inventory building