Canadian Manufacturers Signal Softer Output Growth in January

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Manufacturers reported an increase in work-in-hand (but not yet completed) for the fourth successive month in January. Greater backlogs of work were linked to capacity pressures and supply chain delays.

However, the seasonally adjusted Backlogs of Work Index signalled only a marginal accumulation of outstanding business during the latest survey period.

Stocks of Finished Goods

Post-production inventories fell slightly in January, but the rate of contraction was slower than seen on average in the second half of 2018. Companies reporting a decrease in their stocks of finished goods generally cited tighter inventory management strategies at their plants.

Employment

The seasonally adjusted Employment Index remained well above the neutral 50.0 value in January, which signalled a further robust expansion of staffing levels across the manufacturing sector.

Anecdotal evidence suggested that rising workforce numbers was linked to the need for greater production capacity and the launch of new products.

Quantity of Purchases

Purchasing activity increased at the weakest rate for 14 months in January. The seasonally adjusted Quantity of Purchases Index signalled only a modest upturn in input buying.

Manufacturers noted that softer new order growth had resulted in more cautious purchasing decisions at the start of 2019.

Suppliers’ Delivery Times

Longer delivery times from vendors were reported by manufacturers in January, which continued the downturn in supplier performance recorded since July 2013. However, the seasonally adjusted Suppliers' Delivery Times Index pointed to the least marked lengthening of lead times for 21 months in January.

Survey respondents widely commented on a lack of spare logistics capacity and ongoing delays at ports.

Stocks of Purchases

Adjusted for seasonal influences, the Stocks of Purchases Index signalled another moderate increase in pre-production stocks held by manufacturing companies. The rate of inventory accumulation was the fastest for four months in January.

Some panel members reported efforts to build safety stocks of components in response to longer lead-times from vendors.

Input Prices

January data pointed to another sharp rise in average cost burdens at manufacturing companies, although the rate of inflation eased to a 17-month low. Some firms suggested that softer global demand for raw materials had helped to hold back input cost inflation. Higher cost burdens were linked to trade tariffs, rising prices for steel and exchange rate depreciation against the US dollar.

Output Prices

Manufacturers reported another strong rise in their factory gate charges at the start of 2019. The rate of output price inflation accelerated from the nine-month low seen last December. A number of survey respondents noted that increased cost burdens from trade tariffs on raw materials (particularly steel-intensive items) had been passed on to clients in January.

Future Output

The Future Output Index rebounded slightly from the 34-month low seen in December. Moreover, the latest reading signalled the most optimism about the near-term business outlook for five months.

Manufacturers commented on hopes of an improvement in global trade conditions, planned expansion in US markets and successful investments in additional business capacity.

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