MRO Magazine

Manufacturing index falls in February to lowest level in survey history

22-month period of continuous expansion ends, although Ontario -- the strongest performing region -- posts a slight upturn.


March 2, 2015
By Bill Roebuck


Toronto – The RBC Canadian Manufacturing Purchasing Managers’ Index (RBC PMI) indicated a modest reduction in production levels during February 2015, which ended a 21-month period of sustained expansion. The latest survey also highlighted falling volumes of incoming new work and employment numbers across the sector. Softer demand patterns also contributed to more cautious inventory policies and lower input buying in February.

A monthly survey, conducted in association with Markit, a 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.

Adjusted for seasonal influences, the RBC Canadian Manufacturing PMI dropped from 51.0 in January to 48.7 in February, to signal a moderate deterioration in overall business conditions across the manufacturing sector. The headline index was below the neutral 50.0 threshold for the first time in almost two years, with the latest reading also the lowest since the survey began in October 2010.

“February’s data reflects the hit to confidence from the oil price shock with the weakness most evident in the energy-intensive regions of the country,” said Craig Wright, senior vice-president and chief economist, RBC. “Over time we expect the weaker Canadian dollar and stronger US economy to turn sentiment higher.”


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

Key findings from the February survey include:

– Manufacturing PMI was at lowest level in almost four-and-a-half years

– Output, new orders and employment all decreased in February

– A weaker exchange rate led to robust and accelerated input cost inflation

February data indicated a decline in manufacturing output levels for the first time since April 2013. Anecdotal evidence suggested that weaker client spending patterns had contributed to lower production volumes during the latest survey period. A number of manufacturers, especially intermediate and investment goods producers, cited lower demand from clients in the oil and gas sector.

Volumes of new work received by manufacturers in Canada decreased at a moderate pace in February, thereby ending a 22-month period of continuous expansion. Moreover, the reduction in overall new order levels was the second-fastest since the survey began in October 2010.

New export sales also decreased in February, with the rate of decline the most marked for three years. Panel members noted that sharp falls in energy infrastructure spending had weighed on new business volumes from abroad. However, some manufacturers commented on the positive influence of exchange rate depreciation and stronger US economic conditions.

Lower levels of new work and reduced production volumes contributed to a fall in manufacturing payroll numbers in February. Staffing levels have now declined for two months in a row, and the rate of job shedding accelerated to its fastest pace in almost four-and-a-half years of data collection. That said, a number of firms noted that payroll numbers had been lowered through hiring freezes and the non-replacement of voluntary leavers.

Input buying also decreased at a survey-record pace during February, although the rate of contraction was only moderate. Nonetheless, supplier lead-times continued to lengthen, which some firms linked to disruptions at US West Coast ports.

Average cost burdens rose at a sharp pace in February, with the rate of inflation accelerating to a five-month peak. Higher input prices were overwhelmingly linked to the impact of exchange rate depreciation against the US dollar. Meanwhile, factory gate charges rose only moderately across the manufacturing sector, but the rate of inflation picked up from January’s recent low.

Regional highlights include:

– Alberta & British Columbia registered the steepest deterioration in business conditions

– Ontario was the strongest performing region, and posted a slight upturn in February

– Alberta and British Columbia signalled the sharpest falls in manufacturing new orders and employment for all regions by far

“February’s survey provides a clear signal that substantial parts of the Canadian manufacturing sector are struggling in the face of falling worldwide spending on energy sector projects.” said Cheryl Paradowski, president and chief executive officer, SCMA. “Weaker oil-related investment spending resulted in the first overall drop in new orders for almost two years, with Alberta and British Columbia the worst-performing region in terms of new business inflows and employment trends. However, looking ahead, the weaker exchange rate and improving conditions in the US economy should provide an appreciable tailwind to growth within the Canadian manufacturing sector.”