Toronto – Canadian manufacturers indicated further deterioration in overall business conditions during September 2015, with output, new business and employment levels all falling since the previous month, according to the RBC PMI for September. Weaker demand conditions resulted in lower input buying and greater efforts to streamline inventories, while backlogs of work were reduced at the fastest pace since April.
Moreover, the latest survey pointed to stagnating export sales, despite support from exchange rate depreciation against the US dollar. At the same time, input prices increased at a robust pace amid widespread reports of rising costs for inputs purchased from abroad, but factory gate charges picked up only slightly over the month.
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 48.6 in September, down from 49.4 in August, the seasonally adjusted RBC Canadian Manufacturing PMI registered below the neutral 50.0 threshold for the second month running. Although the index only pointed to a moderate downturn in overall business conditions, the latest reading was the lowest recorded in the five-year survey history.
“Overall conditions in the Canadian manufacturing sector continued to deteriorate in September due to underlying economic conditions, including renewed downward pressure on the price of oil. Weakness was primarily concentrated in Alberta and British Columbia, with the rest of Canada’s PMI levels registering above neutral and remaining in expansion territory,” said Craig Wright, senior vice-president and chief economist, RBC. “Despite persisting challenges in the oil and gas sector, we expect the strengthening US economy to boost Canadian exports and business conditions over the balance of the year.”
The headline RBC PMI reflects changes in output, new orders, employment, inventories and supplier delivery times.
September data indicated a decline in production volumes for the second consecutive month. The rate of contraction was moderate, but nonetheless the fastest since March as manufacturers cut back production schedules in response to lower levels of incoming new work. Manufacturers indicated a marginal fall in total new business during September, which ended a three-month period of expansion. Anecdotal evidence cited a combination of weak domestic demand, alongside stagnating export sales. The latest data indicated that new work from abroad was unchanged since August, which contrasted with modest growth during the previous four months.
A lack of pressure on operating capacity and subdued confidence regarding the global economic outlook continued to weigh on manufacturing staffing levels in September. The latest fall in employment was slightly weaker than in August, with survey respondents mainly commenting on the non-replacement of voluntary departures.
Softer demand and efforts to alleviate cost pressures resulted in tighter inventory policies across the manufacturing sector in September. Reflecting this, stocks of finished goods were depleted for the fifteenth successive month and pre-production inventories fell at the steepest pace since the survey began in October 2010. At the same time, purchasing activity decreased for the seventh time in the past eight months, with the rate of decline the steepest seen during the five-year survey history. Despite lower levels of input buying, latest data signalled further deterioration in supplier performance, which some manufacturers linked to international shipping delays in September.
Meanwhile, average cost burdens increased at a strong pace at manufacturing companies, although the rate of inflation eased slightly since August. Survey respondents commented on squeezed pricing power, which led to only a moderate rise in factory gate charges.
“September was a very tough month for the manufacturing sector in Canada. A renewed decline in the volume of new orders contributed to the sharpest downturn in overall business conditions in the five-year history of the survey” said Cheryl Paradowski, president and chief executive officer, SCMA.
“The weaker loonie has helped export sales in recent months, but this appears to have softened in September with signs of a slowdown in demand. There is some good news regionally. Ontario’s manufacturing sector has seen sustained growth in production and job creation, which contrasts with the trends we are seeing in other parts of the country.”