Manufacturing business conditions improve at fastest pace since October 2013

March data signalled a robust and accelerated improvement in business conditions across the Canadian manufacturing sector, driven by faster rises in production, new orders and employment, according to the latest IHS Markit Purchasing Managers’ Index. Survey respondents widely commented on a boost from stronger domestic demand in March, especially among energy sector clients. Manufacturers also reported positive sentiment regarding the year-ahead outlook, which underpinned the greatest rise in payroll numbers since June 2012.

Meanwhile, cost pressures intensified in March. Efforts to alleviate pressures on margins meant that factory gate prices were raised at the steepest pace for exactly three years.

The seasonally adjusted Markit Canada Manufacturing Purchasing Managers’ Index (PMI) rose from 54.7 in February to 55.5 in March, to remain above the crucial 50.0 no-change value for the thirteenth consecutive month. Moreover, the latest reading signalled the fastest improvement in manufacturing business conditions since October 2013.

Manufacturing output growth continued to strengthen in March, with the latest upturn the steepest recorded for over three years. Survey respondents noted that greater production volumes reflected a robust improvement in new orders, as well as expectations that clients will remain in expansion mode during the months ahead.

New work received by manufacturing firms expanded at the strongest rate for almost two-and-a-half years in March. A number of survey respondents commented on a supportive economic backdrop and a recovery in spending by clients in the oil and gas sector. However, subdued exports sales growth persisted in March, with the latest rise in new orders from abroad only marginal.

Despite rising volumes of new work and reports citing increased capacity utilization, manufacturers signalled a fractional decline in backlogs of work at their plants. Lower levels of unfinished business were mostly linked to productivity improvements and greater staff hiring. Reflecting this, latest data signalled the strongest rate of employment growth for almost five years.

Meanwhile, supply chain pressures persisted in March, as highlighted by a further marked lengthening of delivery times for purchased items.

Worsening vendor performance was attributed to greater demand for inputs and low stocks among suppliers.

A combination of the strong U.S. dollar and generally rising raw material prices resulted in a sharp increase in manufacturers’ cost burdens in March. The rate of input price inflation was the steepest since May 2014, which led to a robust and accelerated rise in factory gate charges.

Regional highlights:

• All regions experienced an improvement in manufacturing conditions during March
• Alberta & B.C. was by far the strongest performing area
• New orders rose in all regions during March
• Ontario recorded the sharpest rise in export sales

For more information, visit www.markit.com/economics.