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Rising COVID-19 cases and material shortages weigh on output growth in January: report

February 2, 2022   Maryam Farag

According to IHS Markit Canada Manufacturing PMI, growth in Canada’s manufacturing sector continued into the new year with operating conditions improving sharply in January.

Output, new orders, purchases and employment all expanded while sentiment improved. However, delivery delays, port congestions and a rise in Omicron cases swept the nation. Vendor performance deteriorated sharply, resulting in poor input availability and weaker output growth.

Disrupted supply chains paired with materials shortages continued to cause sharp price pressures. That said, both input and output price inflation moderated in January.

While output growth softened, domestic demand for Canadian manufactured goods accelerated during the start of the year. Panel comments suggested that despite the presence of virus- related restrictions, demand remained strong. Similarly, sales to international markets rose, albeit at a slower pace in January.

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Faced with increasing orders, firms in Canada raised their headcounts. The rate of growth was solid, and the joint-strongest since July 2021.

The sharp rise in backlogs was a result of weak input availability and poor vendor performance. Lead times were especially lengthy in January with tighter pandemic restrictions, port congestions, adverse weather conditions and truck shortages adding to delays. Moreover, vendor performance deteriorated at the fifth most 70 marked rate in the series history.

Sustained periods of supply chain issues continued to encourage advance ordering strategies with stocks of inventories rising solidly. The rate of growth did, however, slow amid elevated costs and efforts to better control inventories. Meanwhile, stocks of finished goods depleted further with difficulties surrounding production often mentioned by panellists.

As for prices, rising raw material costs (lumber and metal) and higher transportation fares led to another sharp rate of input price inflation. The rate of increase slowed, however, and was the softest for 11 months. Higher cost burdens were passed on to clients in January, though here also the rate of inflation moderated from that seen in December.