Canadian Manufacturers Signal Softer Output Growth in January

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Manufacturers in Canada reported another loss of momentum at the start of 2019, with output and new business growth easing further from the peaks seen last summer. Export sales remained particularly subdued in January, with this index pointing to a marginal fall in new work from abroad.

On a more positive note, manufacturing companies signalled a robust pace of job creation and slower input cost inflation during the latest survey period.

The headline seasonally adjusted IHS Markit Canada Manufacturing Purchasing Managers’ Index® (PMI®) eased from 53.6 in December to 53.0 in January. Although still above the crucial 50.0 no-change threshold, the latest reading pointed to the weakest improvement in overall business conditions since December 2016.

Mirroring the trend signalled by the headline PMI, the latest survey pointed to the slowest rise in production volumes for 25 months during January. Anecdotal evidence suggested that a general slowdown in client demand had held back output growth at the start of 2019.

January data pointed to only a moderate rise in new work received by manufacturing companies. The rate of new business growth eased for the second month running and was the weakest since October 2016. Moreover, new export orders fell in January, albeit only slightly. Survey respondents noted that ongoing global trade frictions had dampened business confidence and contributed to more cautious spending patterns among clients.

Backlogs of work increased for the fourth month running in January. Manufacturers attributed rising volumes of unfinished work to capacity pressures and, in some cases, longer lead-times from suppliers.

A strong rate of employment growth was maintained across the manufacturing sector in January. Companies reporting a rise in their staffing levels generally cited long-term business expansion plans and hopes of a rebound in demand over the course of 2019.

Latest data signalled an improvement in business confidence regarding the year ahead outlook for production. The degree of positive sentiment was the highest recorded since August 2018. Some manufacturers commented on hopes that global trade conditions would start to improve. Survey respondents also generally commented on positive expectations in relation to demand from US markets.

Christian Buhagiar, President and CEO at SCMA said:

“January data highlights that the manufacturing sector got off to a slow start in 2019, with the loss of momentum centred on the weakest increase in new business volumes for more than two years. Survey respondents noted that global trade frictions and subdued business confidence among clients had once again acted as a break on client demand.

“There were some signs that manufacturers expect the slowdown in manufacturing conditions to prove temporary, as signalled by the robust rate of job creation reported in January. Optimism regarding the business outlook also improved at the start of 2019, with output growth projections now the strongest since last August. Manufacturers attributed their positive expectations to planned expansions of production capacity and hopes of strengthening demand in US markets."

Output

Output growth continued to slow in January and remained much weaker than the seven-and-a-half year peak seen in August 2018. The seasonally adjusted Output Index signalled only a moderate rise in manufacturing production, with the latest upturn the smallest recorded since the end of 2016.

Survey respondents commented on a general slowdown in client demand, particularly in export markets.

New Orders

Mirroring the trend for production volumes, latest data signalled a slower rise in new work than at the end of 2018. Moreover, the seasonally adjusted New Orders Index was the lowest recorded since October 2016.

Manufacturers noted more subdued client confidence and lower export demand in January.

New Export Orders

The seasonally adjusted New Export Orders Index registered below the 50.0 no-change threshold for the second month running in January, to signal another marginal fall in new work from abroad. The latest reading was the lowest since November 2017.

Reports from survey respondents suggested that greater risk aversion among clients had held back demand. Some firms also linked lower export sales to a soft patch for the automotive sector.

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