Strong manufacturing growth maintained in October: IHS PMI

OTTAWA — The arrow is pointing up for Canadian manufacturers who recorded further solid rises in output, new orders and purchases during October, according to the IHS Markit Canada Manufacturing Purchasing Managers’ Index (PMI).

The index registered a 55.5, down slightly from September’s 56.0 which IHS said is indicative of another strong improvement in overall business conditions. The PMI was supported by the fastest rise in production volumes since August 2018, which partially offset softer rates of new business growth and job creation compared to the previous month.

Strong output growth was linked to higher new work inflows and ongoing efforts to boost operating capacity across the manufacturing sector. Higher levels of production have been recorded in each month since July.

Also noted are rising demand for inputs and higher prices for raw materials led to the fastest increase in average cost burdens for nearly two years. 

An ongoing recovery in client demand led to a further increase in employment. However, the latest survey also revealed intense supply chain pressures as lead times from vendors lengthened further, which
contributed to the greatest accumulation of incomplete work since June 2018.

October data pointed to another sharp increase in new work received by manufacturers, with the rate of expansion only slightly softer that September’s 27-month high. Panel members noted new business wins in both domestic and international markets. 

The PMI report notes that despite a slight increase in workforce numbers, there were signs that manufacturing companies in Canada struggled to keep up with rising workloads. Volumes of incomplete work increased sharply, partly linked to high levels of capacity utilization. 

Higher backlogs also reflected longer average lead times during October. Firms suggested that transportation delays and stock shortages led to worsening vendor performance. 

Four consecutive months of increasing new orders led firms to boost purchasing activity in October, with the latest increase sharp overall. But stocks of purchases increased only fractionally, which firms attributed to supplier shortages and higher prices. Meanwhile, stocks of finished goods were diminished, which was commonly linked to the fulfilment of new orders. 

Strong demand for raw materials and shortages at suppliers led to the fastest rate of input cost inflation since November 2018. Survey panellists commented on higher prices for aluminium. Factory gate price inflation remained strong, easing only slightly since September. 

But manufacturers remained upbeat about production volumes in the year ahead, although the degree of optimism eased to a three-month low. Nevertheless, firms hope for improved demand conditions, and the passing of the coronavirus disease 2019. 

The IHS Markit Canada Manufacturing PMI is compiled by IHS Markit from responses to
questionnaires sent to purchasing managers in a panel of around 400 manufacturers. A reading above 50 indicates an overall increase compared to the previous month, and below 50 an overall decrease.