Manufacturing PMI hits four-month high in June: IHS

OTTAWA — Canadian manufacturers showed signs of a turnaround in June as slides in output, new orders and employment eased, according to the IHS Markit Canada Manufacturing PMI.

The purchasing managers’ index registered 47.8, up from 40.6 in May and well above the survey-record low seen during April (33.0). However, the latest reading was below the neutral 50.0 threshold.

Production volumes dropped to the weakest point since the downturn began in March. Around 30% of the survey panel reported a fall in output during June, while approximately 27% signalled an expansion.

Production declines were mostly attributed to weaker underlying demand. Where there was growth, panel members mostly cited a phased restart of factory operations and reopening among clients after stoppages due to the COVID-19 pandemic.

The data showed the slowest fall in new work since the start of the downturn in March. Manufacturers reporting lower sales cited cautious spending by customers and worsening global economic conditions in the wake of the pandemic.

Export sales continued to decrease at a faster pace than total new orders in June.

Hiring was held back by alack of pressure on business capacity and concerns about the outlook for customer demand. Employment fell for the fourth consecutive month, but the rate of decline was the least marked over
this period.

Some manufacturers noted they had begun to add to their payrolls in response to more stable demand conditions, but this was more than offset by those signalling continued job cuts in June.

Manufacturing supply chains remained under severe pressure, which led to a further sharp lengthening of lead times for raw materials. More than one-third of the survey panel (35%) noted supplier performance had worsened in June. This was linked to stretched transportation capacity, especially for items shipped from the US.

Meanwhile, input cost inflation accelerated to its fastest for four months during the month. Higher purchasing prices were attributed to exchange rate depreciation against the US dollar and, in some cases, surcharges from vendors linked to the COVID-19 pandemic and supply shortages.

Canadian manufacturers reported an increase in their factory gate charges, but the pace of inflation was only
modest.

Looking ahead, around 42% of the survey panel anticipate a rise in production volumes over the next 12 months, while 16% forecast a reduction. As a result, the index measuring business expectations for the year ahead remained in positive territory, and reached its highest level since February.

Manufacturers typically noted an expected boost to client demand and production schedules associated with a gradual easing of COVID-19 measures.

The IHS Markit Canada Manufacturing PMI is compiled by IHS Markit from responses to
questionnaires sent to purchasing managers in a panel of around 400 manufacturers. A reading above 50 indicates an overall increase compared to the previous month, and below 50 an overall decrease.