Operating conditions continue to improve, but shortages weigh on growth during December: report

According to IHS Markit Canada Manufacturing PMI, the concluding month of 2021 revealed a robust expansion in operating conditions at Canada’s manufacturing sector.

Sustained increases in output, new orders and employment were recorded. There were further signs that material shortages and delivery delays were constraining the sector with output growth softening and backlogs rising markedly.

In other areas, cost pressures were sharp, but moderated further in December. Rising expenses were partially passed through in the form of higher selling charges.

Panellists mentioned that whilst firms were able to source skilled labour, it was not sufficient to tame a rise in backlogs. Outstanding business has now increased in each of the last 17 months, with the latest rise amongst the steepest in the current sequence.

Goods producers continued to register substantial deteriorations in vendor performance with lead times lengthening at rates that were among the most marked in the series history. Raw material 70 scarcity, poor weather conditions, COVID-19 and staffing issues
were attributed to the latest decline.

As a result, firms added to their inventories. Higher output requirements, delivery delays, price hikes and material scarcity were among the key reasons mentioned by respondents. The overall rate of expansion was marked, and the quickest in the 11-year history of the survey.

Higher prices were reported for resin, metals, lumber and transportation. Subsequently, firms raised their selling prices at a softer pace, but one that was still sharp by historical standards.

The Omicron variant and supply-side issues caused some concern over the long-term expectations for output.