Expansions in output, new orders and jobs in May: report

Operating conditions in Canada’s manufacturing sector improved in May amid stronger expansions in output, new orders and employment, according to a S&P Global Canada Manufacturing PMI report.

Sustained demand growth prompted firms to boost their buying activity at a record rate, while capacity pressures continued to build. Despite stronger uplifts in sales, business confidence dipped to a joint ten-month low, reflecting concerns surrounding intense cost pressures. The rates of both output charge and input price inflation eased to the softest since February.

Central to the uptick was an increase in new orders. Stronger demand, particularly for consumer goods, were recorded during the month. Respondents continued to link growth to the retreat of pandemic restrictions and favourable demand for Canadian manufactured goods. International sales increased. Firms mentioned higher demand from the US market.

Firms continued to add to their pre-production inventories as they sought to mitigate against any future supply-chain issues. Quantity of purchases rose at the quickest rate in the series history, beating the previous record set in July 2018. Meanwhile, pre-production stocks rose at the fourth-strongest rate in the series.

“Demand continues to flourish while firms are committed to growing their businesses through a variety of different ventures including product development, improving e-commerce, investing in new machinery and expanding their operations,” said Shreeya Patel, Economist, S&P Global Market Intelligence. “As a result, companies have struggled to keep up with demand, though severe labour and material shortages can also be blamed.”

Raw material scarcity, ongoing supply-chain disruption and lockdowns in China continued to exacerbate cost pressures in May. Higher prices were reported for metals, resin, fuel, transportation and machinery. The rate of inflation moderated to a three-month low but was still marked compared to the long-run series average. Higher expenses were passed on to clients with the overall rate of selling price inflation the third strongest in the series history.

Inflationary concerns weighed slightly on optimism, which moderated to a joint ten-month low in May. Firms are optimistic for output growth over the year ahead amid plans to expand their online presence, greater consumer demand and new client wins.

The seasonally adjusted S&P Global Canada Manufacturing Purchasing Managers’ Index registered 56.8 in May, up from 56.2 in April. The latest reading signalled 23 continuous months of growth, with the latest expansion much quicker than the long-run series average.