Operating conditions strengthen amid solid output growth: report

According to IHS Markit Canada Manufacturing PMI, a solid uplift in output and new orders supported an improvement in business conditions in Canada’s manufacturing sector during February.

Output, new orders and purchasing activity all rose solidly while favourable demand conditions underpinned job creation. There were, however, ongoing supply-side issues with material scarcity leading to lengthy lead times. As a result, severe capacity pressures emerged, and backlogs rose sharply.

A key driver of the latest improvement was a quicker uplift in output. Survey respondents linked rising production volumes to higher unit orders, and greater employment. Similarly, new orders rose sharply in February amid new product launches, and greater demand following a further relaxation of COVID-19 restrictions. Contrary to the trend for domestic sales, exports fell for the first time in over a year.

At the same time, vendor performance deteriorated in February amid poor transportation conditions, shipping delays and material shortages. Overall, delivery times lengthened markedly, and to the fifth-greatest extent in the survey’s 11-and-a-half-year history.

In line with higher workloads, firms increased their buying activity during the month, albeit at the softest pace for a year. Meanwhile, efforts to protect against future delivery delays and price shocks drove a marginal uplift in pre-production inventories. Stocks of finished goods fell solidly, however.

Intense cost pressures persisted with the rate of input price inflation robust in February. Higher raw material prices were overwhelmingly linked to the latest surge, though there were also reports of rising transportation, energy and fuel costs.

Subsequently, and in a bid to protect profits, charges levied by manufacturers in Canada rose sharply. The overall rate of inflation was robust, and among the steepest in the series history.