MRO Magazine

Manufacturing sees growth in August, leading to faster rise in output


Industry

September 6, 2011
By PEM Magazine

Incoming new work at Canadian manufacturers increased at a marked pace during August, according to the RBC Canadian Manufacturing Purchasing Managers Index, a newly launched monthly survey, which offers a comprehensive and early indicator of trends in the Canadian manufacturing sector.

The RBC PMI found that business conditions in the Canadian manufacturing sector improved further in August. This was supported by stronger increases in both output and new orders. Panellists attributed growth of new work to greater demand and new client wins. Subsequently, firms employed additional staff to cope with the increase in workloads. Meanwhile, price pressures eased in August, with both input costs and output charges rising at slower rates.

At 54.9, up from 53.1 in July, the headline RBC PMI — a composite indicator designed to provide a single-figure snapshot of the health of the manufacturing sector — signalled a solid improvement in overall business conditions within the Canadian manufacturing sector in August. The index reading was the highest in four months, as both output and new order levels grew at sharper rates during the latest survey period.

"The Canadian manufacturing sector is showing renewed strength in August, as increases in new work and production levels also boosted employment," said Paul Ferley, Assistant Chief Economist, RBC. "Today’s report supports the view that the supply chain problems in manufacturing which arose from the natural disasters that hit Japan in March have started to reverse. This augurs well for a rebound in manufacturing activity over the second half of this year."

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In addition to the headline RBC PMI, 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 the August survey include:

  • Incoming new work increases at fastest rate since April.
  • Firms further boost production levels.
  • Rate of input price inflation eases to eight-month low.

The latest expansion in the Canadian manufacturing sector partly reflected firms receiving a larger volume of new orders in August. Firms cited greater demand for their goods, as well as new client wins. Notably, the rate of expansion was the fastest in four months. Incoming new orders from abroad also increased, with a number of monitored companies highlighting the U.S. as a key source of new export order growth.

In light of higher new order requirements, firms stepped up production in August. Moreover, survey respondents also fulfilled some new orders by depleting their stocks of finished goods for the second consecutive month.

The amount of inputs bought by firms increased during the latest survey period. Stocks of purchases also rose, albeit only marginally. Meanwhile, the average time it took for suppliers to deliver inputs to Canadian manufacturers lengthened further in August. The latest deterioration in vendor performance was marked and the strongest since May. Anecdotal evidence provided by respondents suggested that delivery delays were frequently the result of backlogs at suppliers.

Employment in the Canadian manufacturing sector increased during August. Notably, the rate of growth was the fastest in three months. Almost 22 per cent of surveyed firms hired additional staff, while nine per cent reported job losses. Job creation was generally linked to greater production requirements.

Manufacturing companies based in Canada recorded higher input costs in August. Raw materials such as metals and petroleum-based items were particularly mentioned by respondents as increasing in price. Nevertheless, the rate of input cost inflation eased since the previous survey period, and was the weakest in 2011 so far. Panellists passed on greater cost burdens to clients by raising their output charges in August. Factory gate prices rose solidly, albeit at the slowest rate since November 2010 and at a weaker pace than that registered for input costs.

Regional highlights include:

  • Regional PMI data signalled that all four broad Canadian regions registered an improvement in overall manufacturing conditions in August. The expansions were stronger than those recorded in July.
  • Similarly, all four broad regions reported new order growth. Quebec, however, posted the weakest rise in new work intakes.
  • Quebec was the only region to register job losses in August.
  • The fastest rate of input cost inflation was recorded in Ontario. Subsequently, manufacturing companies based in that region raised their factory gate prices to the greatest extent.

"Canadian manufacturers received a larger volume of new work in August, with export orders recovering further from the dip recorded in June," said Cheryl Paradowski, President and Chief Executive Officer, PMAC. "The overall increase in new orders largely reflected greater demand and new client wins, and contributed to faster production growth. Meanwhile, panellists also recorded higher input prices, driven by increased costs for certain raw materials. That said, the rate of input price inflation has eased since July to the weakest in 2011 so far."

The report is available at www.rbc.com/newsroom/pmi.