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RBC PMI™ Signals Modest Improvement In Manufacturing Business Conditions In August

TORONTO, Sept. 3, 2013 /CNW/ - Canada's manufacturing expansion was sustained for a fifth consecutive month in August, but the rate of growth was modest and below average, according to the RBC Canadian Manufacturing Purchasing Managers' Index™ (RBC PMI™). A monthly survey, conducted in association with Markit, a leading global financial information services company, and the Purchasing Management Association of Canada (PMAC), the RBC PMI offers a comprehensive and early indicator of trends in the Canadian manufacturing sector.

After accounting for usual seasonal variation, the RBC PMI - a composite indicator designed to provide a single-figure snapshot of the health of the manufacturing sector - posted 52.1 in August, little-changed from July's reading of 52.0. Remaining above the neutral threshold of 50.0, the RBC PMI has indicated growth of the manufacturing sector for five consecutive months, although the latest expansion was modest and weaker than the series average.

The RBC PMI found that both output and new orders rose at modest rates during August. This generally reflected greater client demand in both the domestic and export markets. Firms hired additional staff in light of higher activity levels, with the rate of employment growth accelerating to a three-month high. On the price front, input cost inflation picked up further, while output charges fell for the second month running.

"The PMI continued to make positive gains for the fifth consecutive month and moved modestly higher in August, suggesting some of the recent shocks to the economy have been mitigated by strength elsewhere," said Craig Wright , senior vice-president and chief economist, RBC. "We expect that improving U.S. demand will continue to provide a boost to the manufacturing sector for the balance of the year."

The headline RBC PMI reflects changes in output, new orders, employment, inventories, prices and supplier delivery times.

Key findings from the August survey include:
  • output and new order growth continues;
  • strongest rise in employment since May; and
  • input price inflation picks up to a five-month high.

Manufacturers received a larger volume of new orders in August, as has been the case in each month since April. New work intakes grew in both the domestic and export markets, with the United States particularly highlighted as a source for the latter. Overall, total new order growth was solid, albeit unchanged from a three-month low recorded in July.

Reflective of increased new work, firms raised production and depleted existing inventories of finished goods. Output rose modestly in August, despite the rate of growth being the weakest in the past four-months.

The quantity of inputs bought by Canadian manufacturers rose marginally in the latest survey period. Stocks of purchases also fell, albeit slightly, having increased one month previously. The reduction in input inventories partly reflected a preference for leaner stocks, but was also to offset longer suppliers' delivery times. Lead times for inputs, on average, increased for the second month running in August.

Employment in the Canadian manufacturing sector rose further in August, which is the 19 th consecutive month of growth. Approximately 18 per cent of surveyed firms hired additional staff since July (while seven per cent reduced their staff numbers) and often cited increased business activity. Overall, the rate of job creation was solid and the second-fastest in a year.

Input costs faced by manufacturers continued to rise in August. Panellists commonly reported higher prices for commodities, including oil and metals. Although the rate of inflation accelerated for the fourth month running to its fastest pace since March, it nonetheless remained weaker than the historic average.

In contrast, average selling prices at manufacturing firms fell for the second month running. This was the first back-to-back reduction in output charges since data collection began in October 2010.

Regional highlights include:
  • Ontario saw only a marginal improvement in manufacturing business conditions in August - the weakest among the four regions.
  • New orders fell in Ontario , but increased elsewhere.
  • Employment growth was strongest in Alberta and British Columbia .
  • Output charges fell in three regions, led by Alberta and British Columbia .

"Higher client demand supported a further expansion of the Canadian manufacturing sector in August. New domestic work continued to increase and was matched by a further rise in exports, partly reflecting favourable market conditions in the U.S.," said Cheryl Paradowski , president and chief executive officer, PMAC. "The survey also showed improvement elsewhere, with the Employment Index, in particular, suggesting the second-strongest increase in a year."

The report is available at www.rbc.com/newsroom/pmi

Notes to Editors:

The RBC Canadian Manufacturing PMI™ Report is based on data compiled from monthly replies to questionnaires sent to purchasing executives in over 400 industrial companies. The panel is stratified geographically and by Standard Industrial Classification (SIC) group, based on industry contribution to Canadian GDP.

Survey responses reflect the change, if any, in the current month compared to the previous month based on data collected mid-month. For each of the indicators the 'Report' shows the percentage reporting each response, the net difference between the number of higher/better responses and lower/worse responses, and the 'diffusion' index. This index is the sum of the positive responses plus a half of those responding 'the same'.

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