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Outputs and inputs down in June: RBC

Declines in both IPPI and RMPI end consecutive monthly gains for Canadian manufacturers


July 4, 2011
by Matt Powell

TORONTO—Output and new order growth weakened further in June in Canada’s manufacturing sector, according to RBC’s Canadian Manufacturing Purchasing Manager’s Index (RBC PMI).

The report finds only modest improvements in new orders and output within the Canadian manufacturing sector in June.

New export business fell in June on weak global demand and unfavourable exchange rates.

At 52.8, the headline RBC PMI remained above the 50.0 no-change level separating growth from contraction for the ninth consecutive month in June, despite falling from 54.8 in May.

“Raw material prices have increased by about 25 per over the last year and price of industrial products is up by 4.5 per cent, so manufacturers are paying a lot more for inputs and raw materials,” says Jean-Michel Laurin, vice-president of global business policy at Canadian Manufacturers and Exporters (CME). “Companies are selling more in terms of volume, but because costs are higher, their margins are a lot lower, which makes things very difficult.”

Decreases in Statistics Canada’s Industrial Product Price Index (IPPI) showed an end to nine consecutive monthly gains.

May’s IPPI contraction is the result of lower prices for primary metal products, which fell 2.8 per cent. Petroleum and coal, falling 0.9 per cent and wood products, which fell 1.6 per cent, only contributed modestly to the IPPI decline.

Key findings from this month’s survey:

  • Modest increase in new business volumes, but export orders fell slightly.
  • Job creation at seven-month low.
  • Rate of input price inflation eased since May.

New work for Canadian manufacturers increased for the ninth consecutive month but the rate of new order growth eased since May, respondents reporter a lower volume of new export business.

In particular, respondents noted on a slowdown in demand from U.S. clients.

Reflective of larger work intakes, companies ramped up production in June. But the rise in output remained modest, leading to a marginal accumulation of outstanding work.

The amount of inputs purchased by Canadian manufacturing companies suggests purchases were raised to fulfill higher production requirements and rebuild inventories.

But the report suggests vendors are struggling with greater input demand, especially as limited spare capacity make it difficult to increase production.

Input prices increased markedly for Canadian manufacturers, particularly in the fuel and oil segment, as the costs of those products continue to rise.

StatsCan reports the Raw Material Price Index (RMPI) fell 5.2 per cent in May, ending seven months of gains. The RMPI advanced 5.8 per cent in March and 6.9 per cent in April.

May’s RMPI decline is led by minerals fuels, which fell 8.4 per cent, and crude oil, which fell 8.9 per cent. Prices fell on the state of the economy and weaker than usual seasonal demand from refineries, as most have begun maintenance shutdowns.