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RBC PMI signals expansion in September,but at weakest pace in six months

TORONTO, Ont. – Growth of Canada’s manufacturing sector lost further momentum in September, with the weakest pace of expansion recorded since March, according to the RBC Canadian Manufacturing Purchasing Managers’ Index.

TORONTO, Ont. – Growth of Canada’s manufacturing sector lost further momentum in September, with the weakest pace of expansion recorded since March, 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 – registered 52.4 in September, which is evidence of a modest expansion in Canada’s manufacturing industry. However, having fallen from 53.0 in August, the rate of growth was the slowest for six months. The weaker performance of the sector was further highlighted by the quarterly average PMI reading falling from 54.3 in the three months to June, to 52.8 in the three months to September.

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 an early indicator of trends in the Canadian manufacturing sector.

The RBC PMI signalled that both output and new orders increased during September, partly reflecting greater client demand. The rates of growth eased since August, however, with the latest expansion in production the second-weakest in the two-year survey history. The rate of job creation also eased, slowing to a five-month low. Inflationary pressures meanwhile picked up in September, with input prices rising strongly since August.

“All things considered, particularly within the context of the relatively weak global economic and manufacturing data, the fact that Canada’s manufacturing sector continues to expand is noteworthy,” said Craig Wright, senior vice-president and chief economist, RBC. “While it hasn’t been entirely smooth sailing for Canada’s broader economy in recent months, continued business spending and improving labour market conditions, among other generally positive factors, will help set the stage for GDP growth of 2.1 per cent in 2012.”

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 September survey include:

§  growth of output and new orders slows to eight- and six-month lows respectively;

§  moderate rise in employment, but rate of job creation weakest since April; and

§  input prices increase strongly over the month.

Incoming new work received by Canadian manufacturers rose further in September, with a number of monitored companies attributing this to greater client demand. The volume of new export orders also increased over the month, albeit only marginally. Overall, total new orders rose moderately since August, but the rate of growth was the slowest in six months and weaker than the series average.

Manufacturing production rose in response to larger new order requirements. However, the latest increase in output levels was the second-weakest in two years of data collection. Backlogs of work and stocks of finished goods, meanwhile, were both broadly unchanged from one month previously.

The quantity of inputs bought by Canadian manufacturing firms rose further during September. Panellists commented on raising their purchases to meet the increase in output and also to rebuild input inventories, which rose at the fastest rate for four months. Concurrently, suppliers’ delivery times lengthened during the latest survey period. The latest increase in lead times on inputs was only modest, however.

Employment in Canada’s manufacturing sector increased in September, with approximately 17 per cent of firms hiring additional staff from August. Anecdotal evidence generally linked the increase in employee numbers to greater production requirements. That said, exactly 14 per cent of companies reduced their workforces over the month. Overall, the rate of job creation slowed further to its weakest in five months.

Input costs rose further in September, with fuel and raw materials such as metals and plastics particularly mentioned as having increased in price. Moreover, the rate of inflation was strong and the fastest in four months. Firms passed on greater cost burdens to clients by raising their output charges. Average selling prices rose modestly over the month, with the latest increase the strongest since April.

Regional highlights include:

§  Ontario saw the weakest improvement in manufacturing business conditions during September.

§  New order growth slowed in all four regions, with the weakest expansion recorded for Ontario.

§  The rate of job creation accelerated slightly in Alberta and British Columbia, was broadly unchanged in Quebec, but eased elsewhere.

§  Alberta and British Columbia posted the strongest rate of input price inflation in September.

“The slowdown in Canada’s manufacturing sector was partly reflective of production problems at some companies, with output increasing at the slowest pace since January,” said Cheryl Paradowski, President and Chief Executive Officer, PMAC. “However, weaker growth trends for new orders and employment, and in particular new export work, also contributed and suggest that Canada continued to be hit by ongoing weakness in the global economy.”

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