TORONTO , Ont. — RBC’s  Canadian Manufacturing Purchasing Managers Index  today provided a ray of hope to the otherwise gloomy economic forecasts dominating the news and may point to a late-year rally for the country’s economy. The volume of new work received by Canadian manufacturers continued to increase in September, according to the monthly index, which offers a comprehensive and early indicator of trends in the Canadian manufacturing sector.

The RBC PMI found that business conditions in Canada’s manufacturing sector improved further in September. Both output and new order growth quickened since August, with panelists commenting on greater demand and new client wins. Meanwhile, the rate of job creation was strong and the fastest since March. However, supply-side pressures continued to build during the latest survey period, as firms reported further vendor delivery delays and a strong (albeit slower) rate of input price inflation.

The headline RBC PMI – a composite indicator designed to provide a single-figure snapshot of the health of the manufacturing sector – registered 55.0 in September, up fractionally from 54.9 in August, and signalled a solid improvement in Canadian manufacturing sector business conditions. The latest RBC PMI reading was the highest since April, and reflected further expansions of both output and new orders.

The index is produced in association with Markit, a global financial information services company, and the Purchasing Management Association of Canada (PMAC).

“Today’s RBC PMI figures bode well for a rebound in the Canadian manufacturing sector in the third quarter, consistent with a rebound in the Canadian economy and in line with our latest forecast for real GDP growth in Canada of 2.4% this year,” said Craig Wright, senior vice-president and chief economist, RBC.

In addition to the headline RBC PMI, 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.

The latest expansion in the Canadian manufacturing sector partly reflected firms receiving a larger volume of new work in September. Over one-third of survey respondents reported new order growth, with the pace of increase strong and the fastest in five months. Export orders also rose in September. Panelists linked the rise in total new work to greater demand and new client wins.

Reflective of the further increase in new orders, Canadian manufacturing companies raised production during the latest survey period. Moreover, firms depleted stocks of finished goods in September to partly fulfill new order requirements. Backlogs of work increased nonetheless, although the latest rise was weaker than that registered in August.

Employment in Canada’s manufacturing sector rose further in September, with almost 21 per cent of firms hiring additional staff. The rate of job creation quickened since the previous survey period and was the fastest in six months.

The amount of inputs purchased by surveyed firms increased during the latest survey period. Meanwhile, input inventories were depleted for the first time since April. Panelists generally linked the rise in purchasing activity to higher production requirements in September. Subsequently, the average time it took for suppliers to deliver inputs lengthened at a marked pace. Anecdotal evidence provided by panelists attributed slower lead times to backlogs at vendors.

Monitored companies reported higher input prices in September, reflecting increased costs for certain raw materials. Subsequently, the rate of input price inflation remained strong, despite easing further from April’s peak. Firms passed on greater cost burdens to clients by raising their output charges during the latest survey period. However, the latest rise in factory gate prices was only moderate and the weakest in 11 months.

Regional highlights include:

• Regional PMI data signalled that manufacturing sector business conditions improved in all four broad Canadian regions in September. Alberta & British Columbia led the latest expansion.
• Similarly, Alberta & British Columbia registered the fastest rate of new order growth.
• Quebec was the only region to record job losses in September. Employment fell only marginally, however.
• Input costs increased to the greatest extent in the Alberta & British Columbia region.

“Canadian manufacturers generally commented on greater demand and new client wins in September,” said Cheryl Paradowski, President and Chief Executive Officer, PMAC. “Subsequently, the rate of new order growth quickened to the fastest since April. Moreover, firms raised production and expanded their workforces. Rising input prices are still a concern for a number of companies, but the rate of input cost inflation eased further from April’s peak.”

The report is available at www.rbc.com/newsroom/pmi