PMI hits seven-month high, but severe delivery delays and supply shortages persist

October PMI data revealed another robust improvement in the health of Canada’s manufacturing sector, as expansions were seen across output, new orders, employment and purchasing activity.

However, supply-chain pressures continued to mount with firms registering a record lengthening in lead times. This, paired with greater client demand and concerns of future supply shocks, led companies to raise their pre-production inventories at a record pace. Nevertheless, firms remained optimistic that global economic conditions will improve over the coming 12 months and support expansions in output.

Meanwhile, material scarcity for a wide range of inputs, as well as higher transportation and energy costs led to a near-record rate of input cost inflation. Selling prices also rose, and at the second-most marked rate in the series history.

Central to growth was a sharp upsurge in new orders amid improvements in domestic demand and new product launches. Exports also rose at quicker pace with the rate of growth the steepest since May 2018.

Output expanded solidly during the month with the rate of growth little-changed from that seen in September. Larger workforces and rising orders were key drivers of production growth, though some firms did mention that delivery delays and material shortages did soften the overall uptick.

Goods producers continued to register substantial deteriorations in vendor performance with lead times lengthening at the most marked rate in the survey to date. Raw material and container shortages alongside transportation bottlenecks led to extensive delays.

As a result, cost burdens soared once again. Material shortages, especially for metals, packaging, and electronic components, drove the uptick. There were also reports of higher shipping, fuel, and energy costs. The rate of cost inflation was the second-steepest on record, close to September’s peak.

With supply-chain disruption persisting, and lead times especially lengthy, firms increased their input buying. Consequently, stocks of purchases rose, and at the steepest rate on record as firms sought to protect against future supply shocks and delivery delays.