According to recent data, Canadian manufacturing activity experienced a slight improvement in July as output increased. However, despite this growth, the industry still remained in contraction territory.
Manufacturing PMI Edges Up
The S&P Global Canada manufacturing Purchasing Managers Index (PMI) rose to 49.6 in July from 48.8 in June. While this marked an improvement, it is the third consecutive month that the PMI has remained below the threshold of 50, which separates expansion from contraction.
Rise in Production and Warehouse Inventories
The data also indicated that production saw growth for the first time since April. This modest increase reflected a buildup in warehouse inventories as well as a continued reduction in work outstanding, which has now reached its 12th consecutive month.
Mixed Performance for Canadian Manufacturing
Paul Smith, the economics director at S&P Global Market Intelligence, commented on the PMI results for July, highlighting the mixed performance of the Canadian manufacturing industry. While the return to output growth after two months of contraction is a positive sign, there was still a slight drop in new orders, suggesting market uncertainty and client reluctance to commit to new work.
Inflationary Factors and Market Competition
The survey revealed that price pressures intensified in July, with firms reporting various inflationary factors. However, despite these pressures, inflation rates remain under control due to growing market competition and vendors having sufficient capacity to meet demand. Furthermore, inflation rates have decreased compared to those seen earlier in the year.
Fifth Consecutive Monthly Decline in New Orders
S&P Global’s July survey also showed that new orders declined for the fifth consecutive month, further emphasizing the challenges faced by the Canadian manufacturing sector.
Overall, while there are signs of improvement in certain areas, the Canadian manufacturing industry still faces market uncertainty and obstacles to growth.
Buying and Employment Decline, Operating Expenses Rise
According to a report by S&P Global, the purchase of inputs has continued to decline for 12 consecutive months. Additionally, companies have been reducing their employment levels for the past three months, often opting not to replace departing employees due to insufficient new orders.
The rising costs of transportation, increased interest rates, and higher input prices have resulted in a second consecutive month of increased operating expenses.
However, the survey also revealed that businesses have a positive outlook for the next 12 months. The overall sentiment has reached its highest level since March, driven by expectations of improved market demand, especially with the release of new products.
GDP Shows Modest Growth, Bank of Canada Raises Interest Rate
According to data released by Statistics Canada last week, the gross domestic product (GDP) at the industry level increased by 0.3% in May compared to the previous month. However, early information points towards a potential 0.2% decrease in June.
In response to the economic conditions, the Bank of Canada implemented an interest rate hike last month. The benchmark policy rate was increased by one-quarter percentage point, reaching a 22-year high of 5%.