IHS Markit Canada Manufacturing PMI®

Manufacturing conditions deteriorate for the first time since
February 2016

Key findings:

• Headline PMI dips below the 50.0 no-change mark in April
• Production drops to greatest extent since December 2015
• Export sales continue to fall

LONDON–(BUSINESS WIRE)–April data revealed a downturn in business conditions across the
Canadian manufacturing sector for the first time in more than three
years. The weaker performance mainly reflected modest reductions in
output, new orders and employment during the latest survey period.
Manufacturers responded to softer customer demand by cutting back their
input buying and streamlining their inventories in April. On a more
positive note, input cost inflation remained much softer than the peaks
seen last summer, despite pressure from rising transportation costs.

The headline seasonally adjusted IHS Markit Canada Manufacturing
Purchasing Managers’ Index® (PMI®) dropped from 50.5 in March to 49.7 in
April, to signal a slight deterioration in overall business conditions.
Moreover, the latest PMI reading was the lowest since February 2016.

Manufacturing production declined for the first time in two-and-a-half
years, although the rate of contraction was only modest. Reports from
survey respondents suggested that the fall in output reflected a
realignment of production schedules with softer client demand.

New work decreased for the second month running in April, which marked
the first back-to-back fall in manufacturing sales since the beginning
of 2016. Companies noted that less favourable economic conditions in
both domestic and external markets had acted as a brake on new business
volumes. Export orders have now decreased in four of the past five
months, although the rate of decline eased since March. Manufacturers
continued to suggest that a general slowdown in global trade and
heightened business uncertainty had dampened customer demand.

Weaker order books contributed to reduced pressure on operating capacity
in April. This was highlighted by a marked decline in backlogs of work,
with the rate of contraction the sharpest since December 2015.
Manufacturing firms indicated greater caution in terms of their staff
hiring during the latest survey period, with overall payroll numbers
falling for the first time since September 2016. However, the rate of
decline in employment levels was only fractional.

Tighter inventory management policies were signalled in April, with both
stocks of inputs and finished goods inventories both declining across
the manufacturing sector. The drop in pre-production stocks was achieved
through the fastest reduction in purchasing activity for over three
years.

Softer demand for inputs contributed to relatively subdued cost
pressures in April, although the rate of inflation edged up from March’s
30-month low. A number of firms cited both exchange rate factors and
higher transplantation costs. At the same time, competitive pressures
held back factory gate price inflation, with the latest rise in output
charges still much weaker than the survey-record peak recorded last
summer.

Regional data indicated that Quebec was the best performing area for
manufacturing business conditions in April, followed by Ontario. The
main bright spots for export sales were Alberta & British Columbia, with
a rebound in new work from abroad contrasting with the declines seen
elsewhere in April.

Comment:

Christian Buhagiar, President and CEO at SCMA, said:

“April data illustrates another loss of momentum for the
manufacturing sector, following the sharp slowdown in growth seen during
the first quarter of 2019. The latest survey indicates that overall
business conditions deteriorated to the greatest extent in over three
years as manufacturers cut back production and staff hiring in response
to weaker sales.

“Canadian manufacturers reported subdued demand conditions in both
domestic and external markets during April, which was often linked to a
slowdown in global trade volumes and more cautious spending among
clients.

“Worsening export order books were recorded in all regions except
Alberta & British Columbia during April, with manufacturers in Ontario
experiencing the greatest reduction.”

Output

April data signalled a reduction in manufacturing output for the first
time in two-and-a-half years. This was highlighted by the seasonally
adjusted Output Index falling below the 50.0 no-change value. The latest
reading was the lowest since December 2015, but signalled only a
marginal rate of decline.

Lower production volumes were attributed to a realignment of output to
reflect softer demand from both domestic and export markets.

New Orders

Canadian manufacturers reported a decline in new work for the second
month running in April. The seasonally adjusted New Orders Index dipped
to its lowest for over three years, but was only slightly below the
neutral 50.0 threshold.

Survey respondents continued to cite cautious spending among clients and
more subdued global economic conditions.

New Export Orders

The seasonally adjusted New Export Orders Index registered in
contraction territory for the fourth time in the past five months. That
said, the latest reading was higher than in March and signalled only a
marginal fall in new work from abroad.

Some firms noted that global trade frictions had contributed to greater
business uncertainty and acted as a brake on export sales.

Backlogs of Work

Capacity pressures appear to have eased across the manufacturing sector,
as highlighted by a fall in the seasonally adjusted Backlogs of Work
Index to its lowest since December 2015.

Reduced volumes of unfinished work have been recorded in each of the
past two months, which represents the first back-to-back decline in
unfinished work since the beginning of 2017.

Stocks of Finished Goods

Inventory reduction continued across the manufacturing sector in April,
with stocks of finished goods depleted for the fifth consecutive month.
The seasonally adjusted Stocks of Finished Good Index nonetheless picked
up from March’s 16-month low.

Reduced post-production inventories were linked to a combination of
faster shipments and softer customer demand.

Employment

The seasonally adjusted Employment Index dropped below the crucial 50.0
no-change mark for the first time since September 2016, thereby ending a
two-and-a-half year period of jobs growth at manufacturing companies.

Survey respondents commented that reduced optimism about the near-term
business outlook had contributed to more cautious staff hiring policies
at their plants.

Quantity of Purchases

Manufacturers cut back their purchasing activity in April, which
continued the downward trend seen during the previous month.

The seasonally adjusted Quantity of Purchases Index was the lowest since
December 2015, although the latest reading signalled only a modest rate
of decline.

Suppliers’ Delivery Times

Longer lead time for materials continued in April, as highlighted by the
seasonally adjusted Suppliers’ Delivery Times Index posting below the
50.0 no-change mark.

However, the latest reading signalled a much softer degree of pressure
on manufacturing supply chains than the records seen last summer.

Stocks of Purchases

The seasonally adjusted Stocks of Purchases Index pointed to a decline
in pre-production inventories for the third month running in April.

Reduced inventories were attributed to deteriorating demand conditions
and efforts to improve working capital efficiency.

Input Prices

The seasonally adjusted Stocks of Purchases Index pointed to a decline
in pre-production inventories for the third month running in April.

Reduced inventories were attributed to deteriorating demand conditions
and efforts to improve working capital efficiency.

Output Prices

The seasonally adjusted Output Prices Index signalled a slightly
stronger rise in factory gate charges than in March, but the rate of
inflation remained much softer than the peaks recorded last year.

Manufacturers noted that competitive pressures and lower input cost
inflation had acted as a brake on their average prices charged.

Future Output

Canadian manufacturers remain upbeat overall about the year ahead
outlook for production growth at their plants. Moreover, the Future
Output Index was only slightly below the average seen in 2018 as a whole.

Survey respondents commented on hopes of a rebound in global trade
conditions and an associated improvement in customer demand. However,
some firms continued to cite concerns about the near-term economic
outlook.

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Contacts

IHS Markit
Tim Moore
Associate Director
T:
+44-1491-461-067
tim.moore@ihsmarkit.com

Joanna Vickers
Corporate Communications
T: +44-207-260-2234
joanna.vickers@ihsmarkit.com

SCMA
Lynne Coles
416-542-3860
lcoles@scma.com