Manufacturing rebounds in June

The RBC Canadian Manufacturing Purchasing Managers’ Index indicates a rebound in the manufacturing sector in June, as output and new business growth picked up to the strongest recorded so far in 2014.

Adjusted for seasonal influences, the headline RBC Canadian Manufacturing PMI registered 53.5 in June, up from 52.2 in May, to signal the sharpest overall improvement in business conditions since December 2013. The rise in the headline index was mainly driven by stronger rates of output and new business expansion.

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“We expect that those conditions will further improve going forward supported by a strengthening global economy, increases in external demand for domestic goods and a depreciating Canadian dollar,” says Craig Wright, senior vice-president and chief economist, RBC.

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

Key findings from the June survey include:

• Output and new orders rose at sharpest pace in 2014 to date
• Job creation strengthened
• Input cost inflation eased for the third month running

Manufacturing output growth picked up markedly from the nine-month low registered in May. The current period of rising production volumes stretches back to May 2013, with survey respondents attributing the latest expansion to greater client spending and new product launches.

In line with the trend for output, new business growth rebounded in June and reached a six-month high. Manufacturers mainly cited stronger domestic demand, as new export order growth remained only marginal, despite accelerating from the 14-month low registered in May. When a rise in new work from abroad was reported, survey respondents generally pointed to improved demand from clients in the United States.

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Staffing levels increased in June, thereby extending the current period of manufacturing job creation to five months. Despite an upturn in payroll numbers, stronger demand resulted in the fastest rise in backlogs of work since March.

Greater production requirements boosted input buying across the manufacturing sector in June, with the latest expansion of purchasing activity the fastest seen in 2014 to date. Stocks of purchases nonetheless dipped slightly in June, which contrasted with a marginal rise in post-production inventory levels.

Canadian manufacturers indicated that input prices increased for the twenty-third consecutive month in June. The latest survey pointed to a sharp rise in average cost burdens, but the rate of inflation was the lowest since the start of the year. A number of firms cited exchange rate depreciation against the U.S. dollar as having pushed up prices for imported raw materials. There were also reports of rising oil-related costs in June. Meanwhile, factory gate price inflation eased for the second time in the past three months and was the lowest since December 2013.

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Regional highlights include:

• Quebec posted the fastest overall improvement in business conditions, followed by Alberta & British Columbia;
• All four regions registered a rise in new export orders;
• Employment growth was strongest in Quebec and Ontario.