Orders From Overseas Boost Manufacturing in Canada

New report shows that Canadian manufacturing is expanding

Written by Advisor Staff

The Canadian manufacturing sector continued to expand in June, finds the RBC Canadian Manufacturing Purchasing Managers’ Index.

It benefited from sustained growth in output, new orders and employment.

The headline RBC PMI suggests a moderate improvement in Canadian manufacturing business conditions in June. At 52.4, the headline index remained above the 50 no-change mark, and was at its second-highest level since last September.

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And reflecting increased new work, manufacturers continue to add to their workforces, hiring staff at a faster rate. Meanwhile, there’s been a stronger rise in input costs.

“Canada’s manufacturing sector continued to expand in June, a sign that the slowdown earlier this year was in fact a temporary blip,” says Craig Wright, senior vice-president and Chief Economist, RBC. “Moving into the second half of 2013, an anticipated strengthening in international demand will help the sector shake off its relatively lackluster performance it has recorded over the past year.”

Key findings from the June survey include:

  • Suppliers’ delivery times shortened for first time in 33-month series history
  • The rate of input price inflation accelerated to a three-month high

Manufacturers received a larger volume of new orders in June, and generally attributed this to greater client demand. New export work also rose over the month, with firms particularly mentioning an increase in new orders from Europe. Overall, total new order growth was solid, but slower than the 11-month peak recorded in May.

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Firms raised their production levels and depleted stocks of finished goods in light of these new orders. Output increased for the second consecutive month in June, with the latest rise broadly in line with the series average. Meanwhile, backlogs of work fell, but the reduction mostly reversed an increase in May.

Manufacturing employment in Canada continued to rise in June, with one-in-five surveyed firms hiring additional staff since May. Anecdotal evidence linked job creation to the recent expansion in new orders.

Overall, the rate of employment growth was solid, but slightly weaker than the nine-month high recorded in the previous survey period.

Regional highlights include:

  • Business conditions improved in three out of four Canadian regions, with the exception of Alberta and British Columbia
  • Manufacturers in Quebec reported a strong rise in output during June
  • Manufacturing employment was largely unchanged in Alberta and British Columbia, but rose elsewhere
  • Ontario posted the weakest rise in input prices in June

“The average RBC PMI reading for Q2 was the highest since Q3 2012,” says Cheryl Paradowski, president and chief executive officer, PMAC. “A further rise in new orders, partly reflecting greater client demand, continued to support growth of output and employment in June.”

Meanwhile, manfacturing also improved in the U.S. in June. Activity grew due to a pickup in new orders, exports and production. Better economic growth overseas is also boosting U.S. exports, which could help American factories rebound in the second half of the year.

The Institute for Supply Management says its index of factory activity increased to 50.9 in June. That’s up from 49 in May, which was the lowest reading in four years.

Still, a measure of manufacturing employment fell in June to 48.7, its lowest level since September 2009. That suggests this week’s U.S. employment report will show factories cut jobs for the fourth straight month.

The mostly positive manufacturing survey contributed to strong gains on Wall Street, and followed a pair of upbeat reports of factory growth overseas. The Dow Jones industrial average rose 155 points in midday trading in America, while broader stock indexes also gained.

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