RBC Manufacturing Purchasing Managers Index at eight-month high

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TORONTO, Ont. – Canada appears to be bucking the international trend of slumping economic news today. While the news out of the US, Europe and Asia is focused on slower job growth and output, Canadian manufacturing business conditions improved to the greatest extent in eight months during May, 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 – signalled a strong improvement in Canadian manufacturing business conditions during May. At 54.7, up from 53.3 in April, the RBC PMI recorded the strongest monthly improvement since September 2011 and slightly above the historical average for the series (54.3).

The RBC PMI found that both output and new orders increased further in May, with firms generally citing greater client demand. Moreover, the rates of expansion were strong and the fastest in 2012 to date. Manufacturing employment increased for the fourth consecutive month in May, while the rates of input and output price inflation both slowed from those recorded in April.

“The Canadian manufacturing sector has proven to be quite resilient over the past several months against a backdrop of market uncertainty and softening conditions in many other parts of the world. Employment gains across the sector have been particularly strong since the beginning of the year, with the overall rate of job creation rising at the fastest pace since September 2011,” said Craig Wright, senior vice-president and chief economist, RBC. “Manufacturing plays an important role in the country’s economic growth and we expect Canada’s GDP to grow by 2.6 per cent in 2012.”

The Index, conducted in association with Markit, a global financial information services company, and the Purchasing Management Association of Canada (PMAC), offers a comprehensive and early indicator of trends in the Canadian manufacturing sector

“Canadian manufacturing business conditions improved to the greatest extent since September 2011, with growth of output and new orders both at five-month highs. Firms also reported a strong increase in new export orders, with the latest expansion the fastest since March 2011, as Canada benefitted somewhat from stronger demand in both the U.S. and Asia,” said Cheryl Paradowski, President and Chief Executive Officer, PMAC. “Input costs increased markedly in May, despite the rate of inflation having slowed from April. Panellists particularly mentioned metals, woods and fuel as having increased in price over the month.”

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 May survey include:

RBC PMI signals strongest improvement in Canadian manufacturing business conditions since last September

Greater demand supports robust rise in incoming new work

Job creation sustained for fourth month running

Canadian manufacturers generally attributed the improvement in business conditions to greater client demand. Incoming new work rose further during May, with approximately 37 per cent of firms reporting an increase compared with April. New export orders also rose, with higher demand from the U.S. and Asia particularly mentioned by panellists. Overall, total new work intakes increased strongly in May, with the rate of growth the strongest in 2012 to date.

Reflective of the increase in new orders, firms stepped up production in May. Output rose solidly over the month, with the latest expansion stronger than the series average. Stocks of finished goods were depleted slightly to fulfill some new order requirements; however, backlogs of work increased in May, albeit only marginally.

The quantity of inputs bought by monitored companies increased further during the latest survey period. Panellists attributed the rise in purchases to greater production requirements. Firms held some of their purchases as stock, with input inventories rising solidly and at the strongest rate in the 20-month series history. Meanwhile, suppliers’ delivery times lengthened further in May, but to a lesser extent than in April.

Manufacturing employment in Canada rose for the fourth consecutive month in May, with almost 27 per cent of firms hiring additional staff since April. Overall, the rate of job creation was strong and the fastest since September 2011.

Companies reported that higher raw material prices and unfavourable exchange rates both contributed to larger cost burdens in May. The rate of input price inflation remained marked, despite having eased since April. Panellists passed parts of the increase in costs to clients by raising their selling prices. However, output charges rose only modestly during the latest survey period, and at a rate weaker than the series average.

Regional highlights include:

Manufacturing business conditions improved in all four Canadian regions in May. The strongest monthly improvement was reported in Quebec, as was the case in April.

Quebec posted the fastest rate of new order growth, while the slowest expansion in new work intakes was recorded in Alberta & British Columbia.

Job creation was registered in all four regions during May, with the strongest rise in staffing levels registered in Quebec.

The fastest rate of input price inflation was recorded in Ontario.

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

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