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Manufacturing growth softens to four-month low, but remains solid

July 7, 2021   Maryam Farag

According to IHS Markit Canada Manufacturing PMI, Canadian manufacturers ended the second quarter of 2021 with a robust expansion, led by upticks in output and new orders and a fresh record growth in post-production inventories.

To meet rising demand, firms raised their employment levels for the twelfth consecutive month, although difficulties sourcing skilled workers led to another rise in backlogs. Meanwhile, vendor performance deteriorated again, and at the fourth most marked rate in the series history.

On the price front, input prices continued to rise sharply which panellists attributed to higher raw material costs. In a bid to protect profit margins, firms raised their selling prices, and at the second- quickest rate in the series history.

Production volumes increased solidly at the end of the second quarter, although the rate of expansion eased slightly from that seen in the previous survey period. Firms reporting output growth mentioned greater client demand supported the rise.

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Sustained output growth encouraged firms to add to their headcounts again during the month. The uptick extended the period of job creation to 12 months although the latest rise was the softest since February.

Amid reports of material shortages, average lead times lengthened in June. COVID-19 restrictions and freight delays were also linked to deteriorating vendor performance. In efforts to reduce future 60 delays, firms added to their pre-production inventory holdings, and at a rate that was the quickest in the ten-and-a-a-half year history of the survey.

Despite additions to headcounts, backlogs rose solidly, with the expansion extending the sequence of accumulation to 11 consecutive months. Firms often linked deteriorating vendor performance and a shortage of raw materials to the increase. Rising backlogs also made it difficult for firms to add to their post- production inventories, with stocks of finished goods depleted for the third month running.

Raw material scarcity (particularly for metals and wood) continued to exert upward pressure on firms cost burdens, with input prices rising at the joint-quickest rate since August 2018. Higher expenses were passed on to clients, although the rate of output price inflation softened form May’s series high.