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PMI continues to signal strong growth, but global supply shortages force record rates of inflation

October 2, 2021   Maryam Farag

According to IHS Markit, Canada’s manufacturing sector concluded the third quarter of 2021 with another robust expansion.

Despite a rise in COVID-19 cases, output and new orders rose at historically elevated rates. However, global supply shocks persisted, leading to lengthier delivery times and a subsequent joint-record increase in backlogs. Amid efforts to protect against future shortages, firms raised their pre-production inventories at the joint-quickest rate in the survey to date.

Meanwhile, higher prices for steel, oil and transportation underpinned record rates of input and output price inflation.

Canadian manufacturers recorded another solid upturn in their production volumes, although the rate of growth moderated from August’s four-month peak. Surveyed respondents commented on supportive demand conditions, new product launches and increased efforts to boost output.

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Similarly, new orders rose sharply, but at a softer pace than that seen in August. Firms mentioned strong demand conditions in both domestic and international (particularly the US) markets, despite a rise in COVID-19 cases.

To cater for the sustained increases in output and new orders, firms recorded a fifteenth monthly uptick in employment levels. The latest expansion was the softest since February, however. Anecdotal evidence suggested that labour shortages and difficulties finding skilled workers weighed heavily on hiring activity.

With the continuation of virus-related restrictions, as well as material scarcity, container shortages and freight delays, supplier’s delivery times lengthened at the second-most marked rate in the series history, surpassed only by that seen in April 2020. This, paired 70 with difficulties finding staff, led to a joint-record rate of backlog accumulation. Incomplete work has now risen for the fourteenth month running.

Amid efforts to mitigate against future delays, firms raised their stocks of purchases at the joint-fastest rate in the survey to date. Capacity pressures resulted in another decline stocks of finished goods, however.