MRO Magazine

Manufacturing index dips to a new survey-record low


Industry

November 18, 2015
By Bill Roebuck


Industries

Toronto – The latest RBC Canadian Manufacturing PMI survey, for October 2015, pointed to another downturn in overall business conditions, with output, new orders and employment all declining since the previous month, which also set a record low. Moreover, new export sales dropped for the first time since April, with survey respondents noting that weaker global economic conditions had weighed on new business volumes.

Meanwhile, input costs rose at a sharp and accelerated pace in October, which placed pressure on operating margins and contributed to a further slight increase in factory gate charges.

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. View graph here: RBC 20151102-oct-2015-historical

Adjusted for seasonal influences, the RBC Canadian Manufacturing PMI posted 48.0 in October, down from 48.6 in September and below the neutral 50.0 threshold for the third month in a row. Moreover, the latest reading signalled the sharpest rate of deterioration since the survey began in October 2010.

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“Heightened global economic uncertainty and ongoing energy price weakness continues to weigh on the Canadian manufacturing sector, as indicated by October’s record-low reading of 48.0,” said Craig Wright, senior vice-president and chief economist, RBC. “As we move toward the end of the year, we expect that a strengthening U.S. economy and weaker Canadian dollar will fuel demand for Canada’s exports, resulting in a shift to positive growth territory.”

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

A faster reduction in manufacturing output levels was the main factor contributing to a drop in the headline index during October, as new business volumes decreased at a slightly slower pace than one month previously. Manufacturers linked the survey-record fall in production levels to a combination of weaker underlying demand and efforts to reduce their stocks of finished goods. Reflecting this, latest data indicated the sharpest decline in post-production inventories since the survey began five years ago.

At the same time, manufacturers pared back their input buying for the fourth month running in October, which contributed to the fastest fall in stocks of purchases in the survey history.

Overall volumes of new work decreased slightly in October, but the rate of decline eased since September and was broadly in line with the average so far in 2015. That said, for the first time in six months, manufacturers reported a decrease in export sales. Meanwhile, backlogs of work were lowered again during October, reflecting a general lack of pressure on operating capacity.

Canadian manufacturers indicated a modest reduction in their payroll numbers during the latest survey period, thereby continuing the trend seen throughout much of the year to date. Anecdotal evidence suggested that staffing levels were mainly reduced through the non-replacement of voluntary leavers. Some firms also commented on additional measures to avoid forced job cuts at their plants, including work-share arrangements and greater efforts to boost productivity.

Suppliers’ delivery times lengthened across the manufacturing sector in October, as has now been the case for almost two-and-a-half years. Survey respondents suggested that international shipping delays, alongside capacity cuts among local suppliers, had led to longer lead times for inputs. The latest survey also pointed to upward pressure on input prices, with overall cost burdens rising at the second-fastest pace since July 2014. Manufacturers overwhelmingly linked higher input costs to exchange rate depreciation against the U.S. dollar.

“The lack of spending by Canada’s oil and gas sector, and weak economic conditions abroad, made October a very tough month for Canada’s manufacturing sector. October saw the sharpest fall in manufacturing production in at least five years, and the overall performance of the sector has dropped to yet another record low” said Cheryl Paradowski, president and chief executive officer, SCMA. “This latest fall in production was made worse by manufacturers cutting into their inventories, as the fall in new orders from Canadian manufacturers has levelled off since September. Despite these challenges, we see evidence that employers have tried to limit job cuts as much as possible through initiatives like work-share arrangements, and want to retain their staff in anticipation of future growth.