MRO Magazine

Slower downturn forecast for business conditions in March


Industry

April 1, 2015
By Bill Roebuck

Toronto – The RBC Canadian Manufacturing Purchasing Managers’ Index (RBC PMI) indicated a further downturn in business conditions across the Canadian manufacturing sector in March 2015, though the rate of contraction moderated from the survey-record-low in February.

Output, new business and employment levels all fell at slower rates than in the previous month. Manufacturers, nonetheless, signalled a solid reduction in work-in-hand (but not yet completed), and inventory levels were reduced again amid concerns about the outlook for client demand.

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.

At 48.9 in March, up fractionally from 48.7 in February, the seasonally adjusted RBC Canadian Manufacturing PMI posted below the neutral 50.0 value for the second month running. This represents the first back-to-back deterioration in overall business conditions in the survey’s four-and-a-half year history. Moreover, the average reading for Q1 as a whole (49.5) is the weakest since the survey began in late-2010.

Advertisment

“With a second consecutive reading below 50, the RBC PMI is signalling that Canada’s manufacturing sector continues to face headwinds,” said Craig Wright, senior vice-president and chief economist, RBC. “We remain confident that as the US economy continues to strengthen and the Canadian dollar becomes more competitive, there will be an uptick in exports, a good sign for manufacturers – we need some time to see this materialize.”

Survey respondents suggested that falling capital spending among clients in the energy sector remained the key factor weighing on new business intakes in March. That said, the latest overall decline in incoming new work was only modest and less marked than that seen in the previous month. Export sales also fell at a slower pace than in February, with some firms commenting on support from exchange rate depreciation and stronger demand from clients in the US.

A moderate drop in overall new orders resulted in another decrease in manufacturing production in March. Moreover, the latest survey suggested a lack of pressure on operating capacity, as highlighted by a reduction in backlogs of work for the fourth consecutive month.

Reduced production schedules and falling workloads contributed to more cautious staff hiring patterns in March. Latest data signalled that payroll numbers decreased for the third month running, although the rate of job shedding moderated from February’s survey-record pace.

A number of manufacturers pointed to deliberate stock reduction policies at their plants in response to the uncertain business outlook. Pre-production inventories decreased at the fastest rate since November 2010, while stocks of finished goods were depleted at the most marked pace in just under three years.

Volumes of input buying fell for the second month running in March, reflecting efforts to prevent inventory accumulation across the manufacturing sector. This helped alleviate supply chain pressures in March, with the latest lengthening of vendor lead times the least marked since August 2013.

Average cost burdens increased at a robust pace in March, which survey respondents overwhelmingly attributed to exchange rate depreciation and a corresponding rise in imported raw material costs. That said, the overall rate of input cost inflation moderated since February, while factory gate charges also rose at a weaker pace.

“Lower energy sector investment spending continues to weigh on the Canadian manufacturing sector” said Cheryl Paradowski, president and chief executive officer, SCMA. “In response to the weaker demand environment, manufacturers are exercising caution in terms of job hiring and inventory levels. However, the speed of the downturn moderated in March, and regional data indicated that the latest reduction in export sales was largely confined to Alberta and British Columbia. As a result, despite a further drop in overall workloads, there are some early signs that the benefits of a weaker exchange rate are starting to feed through to the manufacturing sector.”