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Canada's manufacturing sector gains momentum in August

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Canada's manufacturing sector gains momentum in August

RBC PMI hits nine-month high.

August data pointed to a robust upturn in the performance of the Canadian manufacturing sector, according to the RBC Canadian Manufacturing Purchasing Managers' Index, with overall business conditions improving at the fastest pace since November 2013.

"We expect that Canadian manufacturers will continue to directly benefit from the strengthening U.S. economy."

Adjusted for seasonal influences, the headline RBC Canadian Manufacturing PMI registered 54.8 in August, up from 54.3 in July and comfortably above the neutral 50.0 value. The latest reading was the highest for nine months and indicated a robust improvement in overall operating conditions across the manufacturing sector. Output and new business growth both accelerated during August, while job creation picked up markedly to its strongest for 11 months. Meanwhile, cost pressures subsided to their weakest so far this year, which contributed to a further moderation in factory gate price inflation during the latest survey period.

"The momentum in Canada's manufacturing sector is clearly being sustained with the index registering the ninth consecutive month of improvement," said Craig Wright, senior vice-president and chief economist, RBC. "We expect that Canadian manufacturers will continue to directly benefit from the strengthening U.S. economy, which has made and will continue to make positive strides."

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

Key findings from the August survey include:

  • RBC Manufacturing PMI hits nine-month high
  • Sharpest rises in output and new orders since November 2013
  • Job creation strongest for almost a year

Canadian manufacturers signalled a robust and accelerated expansion of production levels in August, thereby extending the current period of growth to 16 consecutive months. Moreover, the latest increase in output levels was the fastest since last November.

A strong pace of new order growth helped support rising production volumes during August, with the latest increase in new work being the steepest since November 2013. Anecdotal evidence cited stronger domestic spending patterns during the latest survey period, alongside a boost to order books from higher export sales. August data pointed to the most marked increase in new work from abroad since March, with a number of manufacturers attributing the rise to greater spending by clients in the U.S.

A sustained improvement in new business inflows continued to encourage job creation across the manufacturing sector in August. The latest survey highlighted that employment numbers rose for the seventh month in a row, and at the strongest rate since September 2013. In turn, increased staffing levels helped slow the pace of backlog accumulation at manufacturing companies in August.

Greater production schedules resulted in a robust expansion of input buying within the manufacturing sector during August. Pre-production stocks were accumulated for the first time in four months, while finished goods inventories were depleted at a marginal pace. Strong demand for raw materials contributed to a further lengthening of suppliers' delivery times in August.

August data provided positive news on the inflation front, with average input prices increasing at the slowest pace since December 2013. Reduced cost pressures in turn contributed to the weakest rise in factory gate charges for nine months.

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