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Newly launched Purchasing Managers Index offers an early trends indicator for Canadian manufacturing sector

TORONTO, Ont. --  - Starting today Canada's purchasing managers will be playing a leading role in identifying key economic trends in the nation's manufacturing sector.


TORONTO, Ont. —  – Starting today Canada’s purchasing managers will be playing a leading role in identifying key economic trends in the nation’s manufacturing sector.

Royal Bank of Canada (RBC), in association with Markit, a global financial information services company, and the Purchasing Management Association of Canada (PMAC), has launched the monthly RBC Canadian Manufacturing Purchasing Managers’ Index (RBC PMI), a comprehensive and early indicator of trends in the Canadian manufacturing sector.

The RBC PMI is based on questionnaire responses from a panel of purchasing or senior executives in more than 400 manufacturing companies in Canada. It will be released on the first business day of each month.

Media were provided with an inside look at the index and access to its authors at special briefing yesterday prior to today’s launch.

In addition to the headline RBC PMI, which is a composite indicator designed to provide a single-figure snapshot of the health of the manufacturing sector, the survey also tracks changes in output, new orders, employment, inventories, prices and supplier delivery times. Index readings above 50.0 signal expansion from the previous month, readings below 50.0 indicate contraction.

“We were keen to be involved because our mandate is to promote the value purchasing managers provide to their companies,” explained Cheryl Paradowski, president and CEO of PMAC. “What better way to identify that value than to show they have a leading role to play in identifying this (economic) data.”

A large number of the survey panel members are PMAC members.

The PMI surveys track “hard data” at surveyed companies and not their opinions of current economic conditions. They are the first indicators of economic conditions to be published each month. For instance, the survey asks “was your business activity higher, the same, or lower than a month ago?” not “do you see the economic climate as favorable at the moment.”

In addition, Markit Economics, which compiles the survey on behalf of PMAC and RBC, does similar surveys across 23 countries. This will allow a comparison of Canadian results with that of other countries and the world, explained Chris Williamson, chief economist, Markit. His company started collecting data for the Canadian index back in October of last year.

Key findings for May’s survey include:

-PMI fell for second consecutive month.

-Robust rise in employment, but at a slower rate than the previous month.

-Suppliers’ delivery times lengthened further as vendors struggled to source raw materials.

Business conditions in the Canadian manufacturing sector improved at a slower pace in May, noted Williamson. This reflected weaker expansion of both output and new orders. However, job creation remained solid and broadly similar to that registered during the previous survey period. Suppliers’ delivery times lengthened further, while input prices rose at a marked rate during May.

“The overall index fell slightly during May with declines evident across most of the key components and across all of the regions,” said Craig Wright, senior vice president and chief economist, RBC. “This aligns with our outlook for a moderation in Canadian economic growth in the second quarter of the year after a robust start to the year.”

Wright added, however, that the slowdown will be temporary and does not signal that fears of a double dip recession are worth considering.

“We are seeing an environment of unevenness and uncertainty…But volatile data is typical of turning points in the economy. I am not shocked by the volatility,” Wright said.

The headline RBC PMI registered 54.8 in May, down from 56.3 in April. Nevertheless, the latest reading posted above the 50.0 no-change level that separates growth from contraction and signalled an improvement in overall business conditions for the eighth month running.

Canadian manufacturers received a larger amount of new orders during May, although the rate of expansion eased. Anecdotal evidence attributed new order growth to greater demand from both domestic and international markets. Panelists particularly highlighted the US as a key source of new export order wins in May.

Surveyed firms correspondingly increased their output in May. Manufacturers have now raised production levels for eight consecutive months. However, output growth weakened to a slower rate during the latest survey period.

Reflective of new order growth being stronger than that of output, the amount of outstanding work increased fractionally during May. The rate of accumulation was partially limited by firms depleting stocks of finished goods.

Employment in the Canadian manufacturing sector increased solidly during the latest survey period, with over one-fifth of respondents expanding their workforces. That said, the rate of growth was down slightly from the previous month. Anecdotal evidence from the survey panel suggested that firms added to their workforces as production requirements rose during May.

Similarly, surveyed firms purchased a greater quantity of inputs in May. A number of respondents commented that this reflected further output growth and efforts to boost stocks.

Supplier lead times lengthened at a marked pace in May, with around 23 per cent of surveyed firms reporting a deterioration. Respondents suggested that vendors struggled to source certain raw materials in May, particularly as global supply-chains were disrupted in the aftermath of the Japanese earthquake.

Monitored companies indicated that a wide range of inputs increased in price during May. Steel and oil were particularly mentioned by panellists. Firms passed part of their greater cost burdens on to clients by raising output prices, but the rate of inflation remained slower than that of input costs. Although still strong, the rates of inflation of both input and output charges eased during May.

 Regional highlights include:

– Regional manufacturing business conditions improved across all four monitored broad regions in May. PMI data indicated the strongest improvement was in Alberta and British Columbia.

– Manufacturers based in Quebec recorded the fastest rate of new order growth.

– Meanwhile, Alberta and British Columbia posted the strongest rate of job creation in May.

– Ontario registered the largest increase in input costs during May. Similarly, monitored companies based in this region also raised their output prices the most.

The report is available at www.rbc.com/newsroom/pdf/pmi-June_11-rpt


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