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Sharp slowdown in Canadian Manufacturing seen as index drops to lowest level in nearly two years

Latest data pointed to the sharpest fall in backlogs of work since March 2013.


Toronto – January 2015 data indicated a sharp slowdown in the Canadian manufacturing sector, with overall business conditions improving at the weakest pace since April 2013, according to the RBC Canadian Manufacturing Purchasing Managers’ Index (RBC PMI).

The latest survey signalled that output and new business volumes grew, but at much slower rates than in December, while employment numbers dropped for the first time since the start of 2014. Manufacturers recorded softer input cost inflation during the latest survey period, while factory gate charges increased at the slowest pace for almost a year and a half.

A monthly survey, conducted in association with Markit, a leading global financial information services company, and the Supply Chain Management Association (SCMA), the RBC PMI offers a comprehensive and early indicator of trends in the Canadian manufacturing sector.

At 51.0 in January, down from 53.9 in December, the seasonally adjusted RBC Canadian Manufacturing PMI signalled only a marginal improvement in overall business conditions at the start of 2015. Moreover, the headline index was at its lowest level for 21 months, largely driven by weaker rates of output and new business growth in January.

“The latest data indicates that Canada’s manufacturers started the year with concerns around uncertainty about global growth prospects, financial market volatility and a sharp drop in oil prices,” said Craig Wright, senior vice-president and chief economist, RBC. “As we look ahead, we expect an eventual recovery in oil prices alongside a strong US economy and a more competitive currency. These factors will support economic growth similar to the 2-1/2% rate achieved last year and the manufacturing sector offsetting weakness in the energy sector.”

The headline RBC PMI reflects changes in output, new orders, employment, inventories and supplier delivery times.

Manufacturing production growth has now moderated for two months running, with the latest increase in output volumes being the slowest since May (and the joint-weakest since August 2013). Meanwhile, new business volumes rose at the least marked rate since April 2013.

Anecdotal evidence from survey respondents, especially investment goods producers, suggested that softer demand from clients in the oil and gas sector had weighed on overall new order gains during the month of January. Moreover, relatively subdued export trends continued during the latest survey period. New orders from abroad increased fractionally and at the weakest pace for four months, although some firms noted a boost to export sales from improving US economic conditions, similar to responses in previous surveys.

Canadian manufacturers signalled a slight reduction in payroll numbers during January, which ended an 11-month period of sustained job creation across the sector. Survey respondents suggested that uncertainty towards the business outlook and a lack of pressure on operating capacity had weighed on staff recruitment at the start of the year. Moreover, latest data pointed to the sharpest fall in backlogs of work since March 2013.

January data highlighted a further month of cautious inventory policies across the manufacturing sector. Stocks of finished goods and pre-production inventories both declined at faster rates than in December. Meanwhile, input buying among Canadian manufacturing firms increased at the slowest pace since May 2014.

Input cost inflation moderated for the third time in the past four months during January. Although the lowest since September 2013, there were widespread reports that the weakening exchange rate had limited the decline in cost inflation. Factory gate charges meanwhile increased only slightly at the start of 2015.

Regional highlights:

– All regions monitored by the survey recorded weaker output trends than in December

– Quebec, Alberta and British Columbia saw the most noticeable reductions in employment

– Input cost pressures moderated in all regions at the start of 2015.

“Canadian manufacturing firms indicated a disappointing start to the year, with overall business conditions improving at the slowest pace for almost two years,” said Cheryl Paradowski, president and chief executive officer, SCMA. “There were some reports that weaker demand for investment goods, especially among clients in the oil and gas sector, had a negative influence on manufacturing production and job creation in January.”


Bill Roebuck

Bill Roebuck

Bill Roebuck is the Editor and Associate Publisher of Machinery & Equipment MRO magazine and mromagazine.com.


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