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TheStreet Open House

RBC PMI™ Rises To 15-month High In September, Suggesting A Solid Manufacturing Expansion In Canada

TORONTO, Oct. 1, 2013 /CNW/ - Canada's manufacturing expansion accelerated to a 15-month high in September, 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 Supply Chain Management Association (SCMA), the RBC PMI offers a comprehensive and early indicator of trends in the Canadian manufacturing sector.

The seasonally adjusted RBC PMI - a composite indicator designed to provide a single-figure snapshot of the health of the manufacturing sector - rose to 54.2 in September, up from 52.1 in August. This indicated further improvement in manufacturing business conditions, with the rate of growth above the series average and the fastest since June 2012.

The RBC PMI found that both output and new order growth accelerated in September. In particular, the latest rise in total new work intakes was strong and the fastest since June 2012. This partly reflected the greatest increase in new export orders for two-and-a-half years. Meanwhile, the rate of job creation also quickened to a 15-month high, as firms hired additional staff to handle increased business activity.

"The global economy is gaining traction, and, with that, we are seeing increasing demand for Canadian exports - particularly from the manufacturing sector, which has contributed to the  PMI reaching a 15-month high in September," said Craig Wright, senior vice-president and chief economist, RBC. "While challenges in the sector remain, this rebound is encouraging. An anticipated strengthening in global economic growth, particularly in the U.S. which is Canada's largest trading partner, bodes well for manufacturing activity late this year and early next."

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

Key findings from the September survey include:

  • strongest rise in new orders since June 2012;
  • employment increases at fastest rate for 15 months; and
  • average selling prices rise for first time since May.

Incoming new work at Canadian manufacturers increased for the sixth consecutive month in September. Moreover, the rate of new order growth was strong and the fastest in 15 months. Firms generally cited new product launches, as well as greater demand, both domestically and in key export markets such as the United States. Concurrently, new export orders rose at the sharpest rate for two-and-a-half years in September.

Firms raised production in light of higher new order volumes. Output rose solidly over the month, and at the fastest rate since May. Nevertheless, outstanding business increased for the first time in four months and at the strongest pace for two years, while stocks of finished goods were broadly the same as in August.

The quantity of inputs bought by manufacturing companies increased for the sixth successive month in September. The rate of growth was solid and the strongest since August 2012. Stocks of purchases also increased, although the rate of accumulation was marginal.

Concurrently, suppliers' delivery times lengthened further in the latest survey period, with panellists suggesting that vendors were generally busier and had leaner inventories. Overall, the latest increase in lead times for inputs was solid and the greatest for 15 months.

Employment growth in the Canadian manufacturing sector accelerated to a 15-month high in September. Approximately 17 per cent of firms hired additional staff since August, and generally attributed this to increased business activity.

Manufacturers faced higher input prices in September, with raw materials and transportation costs having increased over the month. That said, the overall rate of inflation eased slightly since August and was weaker than the series average. Firms passed on higher costs to clients by raising their selling prices. On average, output charges rose moderately and for the first time since May.

Regional highlights include:

  • Manufacturing business conditions improved across all four regions, led by Alberta and British Columbia .
  • New orders increased in Ontario , reversing a reduction one month previously.
  • Alberta and British Columbia recorded the strongest rate of employment growth.
  • Quebec saw the weakest increase in input prices in September.

"After a prolonged period of weakness, the Canadian manufacturing sector appears to be back on track with the RBC PMI rising above its series average to a 15-month high", said Cheryl Paradowski , president and chief executive officer, SCMA. "The main driver of the expansion was an increase in new orders, which in itself reflected the greatest rise in new export work since March 2011. Production levels were insufficient to fully meet new order requirements, with backlogs of work rising at the sharpest rate for two years."

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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