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RBC PMI™ Falls To Four-month Low As Both Output And New Order Growth Slows

TORONTO, Jan. 2, 2014 /CNW/ - Manufacturing business conditions in Canada continued to improve in December, albeit at the weakest pace since August, 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.

After adjusting for seasonal variation, the RBC PMI - a composite indicator designed to provide a single-figure snapshot of the health of the manufacturing sector - registered 53.5 in December and, above the 50.0 no-change mark, indicated a solid improvement in Canada's manufacturing business conditions. However, down from 55.3 in November to a four-month low, the RBC PMI suggested that the rate of growth had slowed further from its recent two-and-a-half year peak.

The RBC PMI showed that new business rose strongly in December, supporting a further increase in production. However, the rate of new order growth eased sharply to a four-month low. Concurrently, employment increased at a modest pace that was the slowest since April. Input prices, meanwhile, rose at the strongest pace for nine months, but the rate of inflation remained weaker than the series average.

"While output and new order growth ebbed in December following a particularly strong month in November, Canada's manufacturing sector continued to grow, registering a solid 53.5," said Paul Ferley, assistant chief economist, RBC. "Our outlook for 2014 is underpinned by the assumption that Canadian exports will firm as the U.S. continues on a path of recovery - this will provide a healthier environment for manufacturing to further grow in the New Year."

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

Key findings from the December survey include:
  • RBC PMI signals solid improvement in manufacturing business conditions;
  • output and new order growth eases from their recent two-and-a-half year peaks; and
  • slowest rate of job creation since April.

The volume of new orders received by Canadian manufacturers increased for the ninth consecutive month in December. Panellists generally commented on greater client demand, both domestically and in key export markets such as the United States. Overall, the rate of new order growth was strong but, having eased over the month, the weakest since August.

Reflective of higher new order requirements, firms raised production and increased their inventories of finished goods during December. That said, output rose at a much weaker pace compared with November, with a number of firms citing production problems. Concurrently, backlogs of work fell for the first time in four months, albeit marginally.

The quantity of inputs bought by manufacturers rose at a moderate pace in December, with firms often linking this to increased output. Companies also reduced their existing input inventories, with this the first stock depletion since August. Suppliers generally struggled with greater demand for inputs in the latest survey period. Consequently, lead times for inputs continued to lengthen, with the latest increase strong and the greatest for 20 months.

Manufacturing employment in Canada rose for the twenty-third consecutive month in December. However, after adjusting for seasonal factors, the rate of job creation eased to an eight-month low, which was also weaker than the series average.

Canadian manufacturers recorded a further increase in costs during December. Higher fuel and raw material prices were commonly reported by panellists, while other respondents also mentioned that unfavourable exchange rates pushed up the cost of imports. Overall, the rate of inflation was strong and the fastest in nine months.

Firms passed on greater costs to clients by raising their selling prices in the latest survey period. The increase in output charges was moderate and to a greater extent than one month previously, but weaker than the rise in costs.

Regional highlights include:
  • Output increased across all four regions, led by Ontario .
  • New order growth eased sharply in Alberta and British Columbia .
  • Quebec was the only region to see lower employment, although the decline was only marginal.
  • Input price pressures strengthened across all four regions in December.

"Despite having dipped to a four-month low in December, the RBC PMI continued to suggest that the manufacturing sector has moved past the weakness at the start of the year. Importantly, new orders continued to rise strongly, suggesting that overall growth will be sustained moving into 2014," said Cheryl Paradowski, president and chief executive officer, SCMA. "The Employment Index continued to disappoint, showing the weakest increase since April, which was also below trend."

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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