Manufacturing is on an upswing

Manufacturing was on an upswing in December as Canadian small businesses gained confidence and manufacturers saw production and new orders rise.

January 4, 2012   by PLANT STAFF

TORONTO: Manufacturing was on an upswing in December. Canadian small businesses were gaining confidence as companies saw production and new orders rise, like their counterparts in the US and China.

Meanwhile commodity prices took off on increased geopolitical risks and the strong manufacturing data from China and the US to bump up the loonie 0.58 of a cent Jan. 2 to 98.91 cents US.

The Canadian Federation of Independent Business (CFIB) reports its small business confidence index increased to 65 for the month, almost 1.5 above the November results.

“The Business Barometer index has historically hovered between 65 and 70 when the economy is expanding,” said Ted Mallett, vice-president and chief economist for CFIB. “The return to ‘near normal’ is seen as good news for Canada’s economic performance, which had lately been constrained by uncertainties in foreign markets.”

Production and new orders in Canada both rose strongly in December, according to the RBC Canadian Manufacturing Purchasing Managers Index (RBC PMI), a monthly survey, conducted in association with Markit and the Purchasing Management Association of Canada (PMAC).

The composite indicator posted a 54 in December, up from 53.3 in November, signalling a solid improvement in Canadian manufacturing business conditions, said RBC.

The results show customer demand is up and production was up, rising faster than November’s growth. New export orders also rose ending two months of decline.

“The Canadian manufacturing sector has demonstrated its resilience as the global economy faces some strong headwinds,” said Craig Wright, senior vice-president and chief economist, RBC. “After some temporary setbacks in 2011, Canada’s economy is set to grow by 2.5% in 2012, provided that European policymakers contain the sovereign debt crisis in that region.”

The US Institute for Supply Management said its survey for last month showed the manufacturing index expanding more than expected, coming in at 53.9. That has higher than the expected reading of 53 and much higher than the 52.7 reading registered in November.

Traders were also relieved to see that China’s main manufacturing index showed expansion, coming in at 50.3 on manufacturing and jumping to 56 on services.

China has been an important prop for the fragile global economic recovery, supporting commodity prices and energy and mining stocks. But growth slowed in 2011 as the Chinese government discouraged lending to control high inflation.

Oil got extra lift from rising tensions between the West and Iran. Prices jumped well over US$3 a barrel after Iran test fired a surface-to-surface cruise missile Jan. 2, part of 10-day naval manoeuvres scheduled to end Jan. 3. Iran’s navy chief, Admiral Habibollah Sayyari, said the test showed the key oil passageway, the relatively narrow Strait of Hormuz, is “completely under our control.”

Iran has threatened to close the strait, through which one-sixth of global crude exports pass, as possible retaliation to new US economic sanctions over Iran’s nuclear program.

The February crude contract on the New York Mercantile Exchange ran ahead $4.13 to US$102.96 a barrel.

Copper prices also advanced following the Chinese data. Copper is viewed as a key economic barometer because it is widely used in infrastructure projects and consumer products and China is the biggest buyer of the metal. The March contract in New York gained nine cents to US$3.53 a pound.

A weak US dollar also helped push bullion higher with the February contract up $33.70 to US$1,600.50 an ounce.

Click here for the RBC PMI report.

Click here for information on CFIB’s Business Barometer.

Files from Canadian Press

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