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Manufacturing downturn sustained in May in Canada

Christian Fernsby |
Canada's manufacturing sector saw operating conditions worsen again in May.

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Production continued to contract amid the sharpest drop in new orders since December 2015.

More positively, employment saw a fractional increase after a slight dip in April, whilst input price inflation eased to its slowest rate in over four years.

The headline seasonally adjusted IHS Markit Canada Manufacturing Purchasing Managers’ Index® (PMI®) dropped from 49.7 in April to 49.1 in May, signalling a second successive monthly deterioration in business conditions.

The latest PMI reading was the lowest in nearly three-and-ahalf years, albeit still indicating only a slight downturn.

All components of the headline index, bar employment, had a downward impact on the figure.

Output contracted at the most marked rate since the end of 2015.

Panellists linked this to falling new orders and subdued global trade conditions.

Correspondingly, total new manufacturing orders dropped for the third month running and at the sharpest rate in this period.

Firms noted weaker demand in both domestic and foreign markets.

Some firms also cited a negative impact on sales from lower construction activity.

Manufacturers reacted by paring back input purchases for the third consecutive month, albeit at a modest and relatively unchanged pace since April.

This led to a slight reduction in pre-production stock levels, while inventories of finished goods were broadly stable.

Conversely, workforce numbers increased marginally in May, reversing the mild drop last month.

This was partly linked to expansion of factory space, countering the drag from softer production levels.

Supply chain performance deteriorated at only a slight pace, registering the smallest increase in delivery times for over three years.

Some firms noted a shortage of raw material supply leading to longer delays.

On the price front, Canadian manufacturing firms registered the weakest inflation of input costs in over four years, and the joint-softest for nearly six years.

Despite this, panellists highlighted a number of price rises, including fuel, resin and foodstuff charges.

Tariffs from the US also inflated cost burdens, which firms then passed on to customers through a solid uptick in output charges.

Looking ahead, manufacturing companies remained upbeat regarding future output.

In fact, the level of optimism climbed to the highest in 13 months, despite the current slowdown in the sector.

Firms noted that a number of factors aided their positive expectations, such as new products, hiring plans and factory expansion, while also citing signs of a turnaround in the wider economy.

Meanwhile, latest data pointed to deteriorating business conditions across all regions monitored by the survey.

Ontario registered the sharpest downturn in manufacturing performance during May, partly reflecting a survey-record decline in new export sales.

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