Manufacturing business conditions see strong improvement: PMI

Meanwhile, worsening vendor performance and rises in input costs meant sharp stock accumulation

June 1, 2018
Purchasing B2B

The manufacturing sector experienced a strong improvement in business conditions during May, underpinned by a faster rise in new business volumes. Export sales were a key driver of growth, with the latest increase in new work from abroad the steepest seen since March 2011.

Sustained rises in manufacturing workloads led to capacity pressures and another round of robust job creation. There were also widespread reports that supply chain constraints had led to delays in the receipt of raw materials. Meanwhile, worsening vendor performance and expected rises in input costs resulted in the sharpest pace of stock accumulation for six years in May.

At 56.2, up from 55.5 in April, the headline seasonally adjusted IHS Markit Canada Manufacturing Purchasing Managers’ Index (PMI) pointed to the strongest overall improvement in business conditions since April 2011. A faster rate of new order growth was a key factor behind the rise in the headline PMI during May, alongside a steeper upturn in pre-production inventories. The headline index has posted above the 50.0 ‘no-change’ value in each month since March 2016.

Production volumes increased at a marked pace in May, but the rate of output expansion remained on a softer trajectory than new order intakes. A number of manufacturers noted that capacity constraints and longer lead-times from suppliers had held back production growth, which resulted in one of the fastest rises in backlogs of work since the survey began in late-2010.

The latest increase in new order volumes was the steepest seen since April 2017, helped by the most marked rise in export sales for just over seven years. Survey respondents commented on improving demand conditions in key external markets, particularly the US. Greater workloads and long-term business expansion plans led to a relatively strong rise in staff hiring in May.

Meanwhile, latest data signalled the second-sharpest downturn in supplier performance since the survey began in late-2010 (exceeded only by April’s record low). Anecdotal evidence suggested that rising input buying and logistics constraints among US truck drivers had resulted in stock shortages among suppliers in May. Concerns about the availability of materials meant that manufacturers build up their stocks of inputs at the quickest pace since May 2012.

Inventory accumulation also reflected efforts to guard against anticipated input prices rises. May data revealed the steepest increase in cost burdens for over four years, partly driven by higher prices for steel-related inputs. Meanwhile, factory gate charges rose at the strongest pace since April 2011.

Regional highlights include:

  • Quebec experienced the strongest overall improvement in manufacturing conditions;
  • New order growth in Quebec was the fastest for almost six years; and
  • All regions recorded strong input cost inflation and longer delivery times for materials.