RBC PMI Index points to sustained manufacturing recovery
But purchasing managers reported growth of new orders slowed in May.
TORONTO — Manufacturing conditions continued to improve moderately in May with greater levels of output, new business and employment, according to RBC’s survey of purchasing managers.
May data set the RBC Purchasing Managers Index at 52.1, a slight retreat from the 52.2 recorded in April, but still marking three months of improvement.
RBC said the average PMI reading so far this quarter indicates the strongest momentum since Q4 2014.
“The latest data reflects mixed results in the manufacturing sector during May. While production and new orders are up, the fall in export sales raises questions about Canada’s transition to a more export-led expansion,” said Craig Wright, RBC’s senior vice-president and chief economist.
“Quebec manufacturing was a bright spot and Ontario remains the best performing in terms of export and jobs growth, but BC and Alberta continued to decline and the forest fires in Fort McMurray, Alta. are expected to put further pressure on both the manufacturing sector and overall economic indicators in Alberta,” he said.
Survey respondents noted greater volumes of new business and improved confidence in the general economic outlook had underpinned the increase in output levels.
New order volumes picked up for the third month, which mirrored the trend recorded for production volumes across the manufacturing sector. However, the latest survey signalled a slight loss of momentum from the 16-month high seen during April.
RBC said anecdotal evidence suggested new product launches and gradually improving demand conditions had supported manufacturing sales, while subdued investment spending and cautious inventory management among clients slowed growth.
Export sales were also a drag on new business. Although only marginal, the reduction in new work from abroad was the first since October 2015.
Staffing levels were boosted, continuing a three-month trend. Another increase in staff recruitment helped to drive a modest reduction in work-in-hand (but not completed), which extended the current period of backlog depletion to 18 months running.
The latest survey pointed to cautious inventory policies. Stocks of finished goods declined at the fastest pace since January, while pre-production inventories fell despite higher volumes of input buying. RBC noted lead-times from vendors lengthened amid reports of capacity cuts and reduced stocks among suppliers.
Meanwhile, input cost inflation accelerated over the month, which survey respondents mainly linked to higher steel prices and the weak exchange rate. Factory gate charges were broadly unchanged, which firms attributed to weak pricing power and intense competitive pressure.
The monthly survey is conducted in association with Markit, a global financial information services company, and the Supply Chain Management Association (SCMA).
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