MRO Magazine

New Manufacturing Purchasing Managers’ Index finds weaker growth of output

Toronto, ON -- Royal Bank of Canada (RBC), in association with Markit, a global financial information services company, and the Purchasing Management Association of Canada (PMAC), have launched the monthly RBC Canadian Manufacturing Purchasing...


Toronto, ON — Royal Bank of Canada (RBC), in association with Markit, a global financial information services company, and the Purchasing Management Association of Canada (PMAC), have launched the monthly RBC Canadian Manufacturing Purchasing Managers’ Index (RBC PMI), a comprehensive and early indicator of trends in the Canadian manufacturing sector. The RBC PMI will be released on the first business day of each month.

In addition to the headline RBC PMI — a composite indicator designed to provide a single-figure snapshot of the health of the manufacturing sector — the survey also tracks changes in output, new orders, employment, inventories, prices and supplier delivery times. Index readings above 50.0 signal expansion from the previous month, readings below 50.0 indicate contraction.

Key findings from this month’s survey include:

– PMI fell for second consecutive month.

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– Robust rise in employment, but at a slower rate than the previous month.

– Suppliers’ delivery times lengthened further as vendors struggled to source raw materials.

– Business conditions in the Canadian manufacturing sector improved at a slower pace in May 2011. This reflected weaker expansion of both output and new orders. However, job creation remained solid and broadly similar to that registered during the previous survey period. Suppliers’ delivery times lengthened further, while input prices rose at a marked rate during May.

“The overall index fell slightly during May with declines evident across most of the key components and across all of the regions,” said Craig Wright, senior vice-president and chief economist, RBC. “This aligns with our outlook for a moderation in Canadian economic growth in the second quarter of the year after a robust start to the year.”

The headline RBC PMI registered 54.8 in May 2011, down from 56.3 in April 2011. Nevertheless, the latest reading posted above the 50.0 no-change level that separates growth from contraction and signalled an improvement in overall business conditions for the eighth month running.

Canadian manufacturers received a larger amount of new orders during May, although the rate of expansion eased. Anecdotal evidence attributed new order growth to greater demand from both domestic and international markets. Panellists particularly highlighted the U.S. as a key source of new export order wins in May.

Surveyed firms correspondingly increased their output in May. Manufacturers have now raised production levels for eight consecutive months. However, output growth weakened to a slower rate during the latest survey period.

Reflective of new order growth being stronger than that of output, the amount of outstanding work increased fractionally during May. The rate of accumulation was partially limited by firms depleting stocks of finished goods.

Employment in the Canadian manufacturing sector increased solidly during the latest survey period, with over one-fifth of respondents expanding their workforces. That said, the rate of growth was down slightly from the previous month. Anecdotal evidence from the survey panel suggested that firms added to their workforces as production requirements rose during May.

Similarly, surveyed firms purchased a greater quantity of inputs in May. A number of respondents commented that this reflected further output growth and efforts to boost stocks.

Supplier lead times lengthened at a marked pace in May, with around 23% of surveyed firms reporting a deterioration. Respondents suggested that vendors struggled to source certain raw materials in May, particularly as global supply-chains were disrupted in the aftermath of Japan’s earthquake.

Monitored companies indicated that a wide range of inputs increased in price during May. Steel and oil were particularly mentioned by panellists. Firms passed part of their greater cost burdens on to clients by raising output prices, but the rate of inflation remained slower than that of input costs. Although still strong, the rates of inflation of both input and output charges eased during May.

Regional highlights include:

– Regional manufacturing business conditions improved across all four monitored broad regions in May. PMI data indicated the strongest improvement was in Alberta and British Columbia.

– Manufacturers based in Quebec recorded the fastest rate of new order growth.

– Meanwhile, Alberta and British Columbia posted the strongest rate of job creation in May.

– Ontario registered the largest increase in input costs during May. Similarly, monitored companies based in this region also raised their output prices the most.

“The Canadian manufacturing sector grew at a weaker rate in May, as growth of new orders received by surveyed firms eased. Nevertheless, panellists attributed the latest increase in new orders to greater global demand,” said Cheryl Paradowski, president and chief executive officer, PMAC. “Meanwhile, supply pressures such as longer delivery times and higher input prices persisted in May.”

The report is available at www.rbc.com/newsroom/pdf/pmi-June_11-rpt.