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Manufacturing conditions deteriorate for first time since February 2016 in Canada

Christian Fernsby ▼ | May 2, 2019
April data revealed a downturn in business conditions across the Canadian manufacturing sector for the first time in more than three years.
Canada manufacturing
Canada   The headline seasonally adjusted PMI dropped from 50.5 in March
The weaker performance mainly reflected modest reductions in output, new orders and employment during the latest survey period.

Manufacturers responded to softer customer demand by cutting back their input buying and streamlining their inventories in April.

On a more positive note, input cost inflation remained much softer than the peaks seen last summer, despite pressure from rising transportation costs.

The headline seasonally adjusted IHS Markit Canada Manufacturing Purchasing Managers’ Index (PMI) dropped from 50.5 in March to 49.7 in April, to signal a slight deterioration in overall business conditions.

Moreover, the latest PMI reading was the lowest since February 2016.

Manufacturing production declined for the first time in twoand-a-half years, although the rate of contraction was only modest.

Reports from survey respondents suggested that the fall in output reflected a realignment of production schedules with softer client demand.

New work decreased for the second month running in April, which marked the first back-to-back fall in manufacturing sales since the beginning of 2016.

Companies noted that less favourable economic conditions in both domestic and external markets had acted as a brake on new business volumes.

Export orders have now decreased in four of the past five months, although the rate of decline eased since March.

Manufacturers continued to suggest that a general slowdown in global trade and heightened business uncertainty had dampened customer demand.

Weaker order books contributed to reduced pressure on operating capacity in April.

This was highlighted by a marked decline in backlogs of work, with the rate of contraction the sharpest since December 2015.

Manufacturing firms indicated greater caution in terms of their staff hiring during the latest survey period, with overall payroll numbers falling for the first time since September 2016.

However, the rate of decline in employment levels was only fractional.

Tighter inventory management policies were signalled in April, with both stocks of inputs and finished goods inventories both declining across the manufacturing sector.

The drop in pre-production stocks was achieved through the fastest reduction in purchasing activity for just over three years.

Softer demand for inputs contributed to relatively subdued cost pressures in April, although the rate of inflation edged up from March's 39-month low.

A number of firms cited both exchange rate factors and higher transportation costs.

At the same time, competitive pressures held back factory gate price inflation, with the latest rise in output charges still much weaker than the seven-year peak recorded last summer.

Regional data indicated that Quebec was the best performing area for manufacturing business conditions in April, followed by Ontario.

The main bright spots for export sales were Alberta & British Columbia, with a rebound in new work from abroad contrasting with the declines seen elsewhere in April. â–