Christian Buhagiar, President and CEO at SCMA said:
Canadian manufacturers experienced a slowdown in overall business conditions during February, with weaker employment growth the main factor weighing on the headline PMI reading.
Production growth was relatively subdued, reflecting a sustained soft patch for incoming new work so far this year. Survey respondents noted that trade frictions and heightened global economic uncertainty had led to delayed decision-making among clients on new orders.
The main positive developments were signs of reduced pressure on supply chains and a fall in input cost inflation to its lowest since September 2016. The latest deterioration in vendor performance was the least marked for almost two years, despite reports that adverse weather conditions had caused some disruption to supply chains in February.”
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Subdued business conditions persisted across the Canadian manufacturing sector in February, with the latest survey data pointing to the slowest rise in employment numbers since the start of 2017. At the same time, growth of production volumes and incoming new work remained among the weakest seen over the past two years, although the latter accelerated since January.
The headline seasonally adjusted IHS Markit Canada Manufacturing Purchasing Managers Index (PMI) dropped from 53.0 in January to 52.6 in February, which signalled the slowest overall improvement in business conditions since December 2016. A softer rate of job creation and stagnating pre-production inventories were the key factors holding back the Manufacturing PMI in February. A slight rebound in new order growth was the main positive contribution to the headline index.
February data signalled only a modest increase in production volumes, with the rate of expansion only fractionally stronger than January’s 25-month low. New business volumes increased at a slightly faster pace than at the start of the year, but the latest rise was still one of the weakest seen since the second half of 2016.
Reports from survey respondents suggested that subdued client demand had held back manufacturing output growth in February. A number of firms noted that global trade frictions and heightened economic uncertainty had led to delayed decision-making among clients. Moreover, some manufacturers commented that higher cost burdens amid rising prices for steel-intensive items had dampened competitiveness in export markets. On a more positive note, there were also reports that strong demand from US clients had helped to support overall new export order volumes in February.
Manufacturers continued to signal an accumulation of unfinished business at their plants in February. Some firms suggested that adverse weather conditions had disrupted supply chains and contributed to increased backlogs of work. That said, the latest downturn in supplier performance was the least marked since April 2017, which manufacturers linked to greater stocks among vendors and softer demand for materials.
Input buying increased at the weakest pace for more than one year. Moreover, stocks of purchases dipped slightly in February, which ended 15 months of sustained inventory building.
Staffing levels rose at the slowest rate since January 2017. Manufacturers noted that softer client demand in recent months and tight labour market conditions had held back employment growth at their plants. There were also pressure on margins from rising costs had constrained job creation. However, latest data indicated that input price inflation moderated to its lowest since September 2016. Where a rise in costs was reported, this was mainly linked to trade tariffs on metals.
The seasonally adjusted Output Index was up only fractionally from the 25-month low seen during January.
Reports from survey respondents suggested that subdued new business intakes continued to hold back production growth in February.
February data signalled a moderate rise in new work received by Canadian manufacturing companies. The seasonally adjusted New Orders Index picked up since January, but was still at one of the lowest levels seen since the second half of 2016.
Manufacturers noted that trade frictions and heightened global economic uncertainty had led to delayed decision making among some clients.
New Export Orders
Export sales returned to growth in February, following a slight reduction at the start of 2019. However, the seasonally adjusted New Export Orders Index signalled only a marginal rate of expansion.
Survey respondents commented on resilient demand from US markets. However, there were also reports that high manufacturing costs, particularly for domestic steel and aluminium, had dampened export competitiveness.
Backlogs of Work
Higher levels of unfinished work were recorded for the fifth month running in February. The seasonally adjusted Backlogs of Work Index indicated only a moderate rate of backlog accumulation in the latest survey period.
A number of firms reported that unusually bad weather conditions had disrupted supply chains and contributed to higher levels of unfinished business.
Stocks of Finished Goods
Stocks of finished goods were depleted again in February, as highlighted by the seasonally adjusted index posting below the 50.0 no-change value for the third month running. Moreover, the rate of decline was the fastest since September 2018.
Lower post-production inventories were generally linked to softer client demand.
The seasonally adjusted Employment Index signalled a marked slowdown in the rate of job creation across the manufacturing sector in February, with the latest reading pointing to the weakest rise in workforce numbers since January 2017.
Some firms noted that tight labour market conditions had restricted their ability to hire suitably skilled staff.
Quantity of Purchases
Manufacturers reported only a marginal expansion of purchasing activity in February. The seasonally adjusted Quantity of Purchases Index signalled the slowest rise in input buying since November 2017.
Anecdotal evidence suggested that slower growth of new work in recent months had acted as a brake on purchasing activity.
Suppliers Delivery Times
Adjusted for seasonal influences, the Suppliers’ Delivery Times Index remained well below the neutral 50.0 value, thereby signalled another deterioration of vendor performance in February. However, the latest reading pointed to the least marked lengthening of lead-times since April 2017.
Companies reporting longer delivery times for inputs generally cited pressure on capacity among domestic suppliers (especially for steel).
Stocks of Purchases
The seasonally adjusted Stocks of Purchases Index posted below the 50.0 no-change mark for the first time since October 2017.
Anecdotal evidence suggested that weaker demand growth in recent months had resulted in more cautious inventory management strategies during February.
February data revealed a sharp slowdown in input cost inflation across the manufacturing sector. Adjusted for seasonal influences, the Input Prices Index signalled the weakest rise in average cost burdens since September 2016.
Manufacturers continued to note that trade tariffs on steel and aluminium were a key factor pushing up the cost of inputs during February, although some commented that the most intense phase of price rises had passed.
Mirroring the trend for input costs, latest data signalled a slower rate of output charge inflation at manufacturing companies.
The seasonally adjusted index pointed to the weakest rise in factor gate prices since March 2018.
Despite soft patch for output and new order growth in February, manufacturers indicated a further rebound in business confidence from the 34-month low seen last December.
The Future Output Index signalled the strongest degree of business optimism since June 2018. Survey respondents cited forthcoming new product launches, hopes of a recovery in global trade volumes and an expected moderation in input cost pressures.
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