RBC Canadian Manufacturing Purchasing Managers’ Index finds output growth strengthens to eight-month high in December

TORONTO, Ont. — Canada continues to defy the pessimistic outlook of the stock market as production and new orders both rose strongly in December, according to the RBC Canadian Manufacturing Purchasing Managers Index.

The headline RBC PMI – a composite indicator designed to provide a single-figure snapshot of the health of the manufacturing sector – posted 54.0 in December, up from 53.3 in November, and signalled a solid improvement in Canadian manufacturing business conditions. Index readings above 50.0 signal expansion from the previous month; readings below 50.0 indicate contraction.

The RBC PMI found that Canadian manufacturing business conditions improved further in December. Firms generally commented on greater client demand. Concurrently, both new orders and output increased strongly and at rates faster than registered in November. New export orders also rose in December, ending a two-month period of decline. Meanwhile, the rate of input price inflation eased further during the latest survey period and was at the slowest pace in the 15-month series history.

“The Canadian manufacturing sector has demonstrated its resilience as the global economy faces some strong headwinds,” said Craig Wright, senior vice-president and chief economist, RBC. “After some temporary setbacks in 2011, Canada’s economy is set to grow by 2.5 per cent in 2012, provided that European policymakers contain the sovereign debt crisis in that region.”

The RBC PMI is a monthly survey, conducted in association with Markit, a global financial information services company, and the Purchasing Management Association of Canada (PMAC). It offers a comprehensive and early indicator of trends in the Canadian manufacturing sector.

In addition to the headline RBC PMI, the survey also tracks changes in output, new orders, employment, inventories, prices and supplier delivery times.

Key findings from the December survey include:

• Strong increases in both new orders and production
• Job creation remains solid
• Rate of input price inflation slowest in 15-month series history

Firms partly linked the improvement in business conditions to greater client demand. Approximately 30 per cent of respondents reported an increase in new orders compared with 21 per cent that registered a decrease. Overall, new order growth was strong and the fastest in three months. Incoming new work from abroad also rose in December, in contrast to declines registered in each of the past two months.

Reflective of larger new order volumes, Canadian manufacturing firms raised production in December. Output increased strongly, with the rate of growth the fastest since April. Stocks of finished goods were also depleted, while backlogs were reduced for the third month running.

The amount of inputs bought by monitored companies increased in December, as has been the case since data collection began in October 2010. Meanwhile, input inventories were depleted for the fourth consecutive month. Anecdotal evidence attributed higher purchasing activity to larger new order requirements.

Lead times on inputs increased further during the latest survey period. Panellists suggested that vendors struggled with greater input demand. Although the latest lengthening of delivery times was solid, it was nonetheless the weakest in the 15-month survey history

Employment in Canada’s manufacturing sector rose solidly in December. Approximately 19 per cent of surveyed firms hired additional staff (while 13 per cent reduced their workforces), and largely linked job creation to the recent increases in new order volumes.

Canadian manufacturers reported higher input costs in December, with raw materials such as steel and sugar particularly mentioned as having increased in price. That said, the rate of input price inflation eased further from April’s peak and was the slowest in the series history. Firms partly passed on larger cost burdens to clients by raising their selling prices. However, the latest increase in output charges was only marginal and below the series average.

Regional highlights include:

• Regional PMI data indicated that business conditions improved in three out of four regional manufacturing sectors in December. The only exception was Quebec, where operating conditions were unchanged from November.
• Ontario posted the fastest rate of new order growth, closely followed by Alberta & British Columbia.
• Quebec was the only region to register job losses in December.
• The fastest rate of input price inflation was registered in Alberta & British Columbia.

“Canadian manufacturing sector business conditions improved further in December, with both output and new orders increasing strongly. This in part reflected greater client demand from both domestic and foreign clients. The rate of input price inflation was also at the slowest pace in the 15-month series history,” said Cheryl Paradowski, President and Chief Executive Officer, PMAC. “Although the overall story from the latest survey is generally positive, the headline PMI nonetheless ends 2011 at a level below the series average.”