Manufacturing business conditions pick up: RBC

Operating conditions in Canada’s manufacturing sector have improved, reflecting a sharp acceleration in the rate of new order growth, says RBC’s Purchasing Managers’ Index (RBC PMI).

The bank’s PMI rose to an 11-month high in May, hitting 53.2. That’s up sharply from April’s 50.1above the 50.0 no-change mark that separates growth from contraction and consistent with a solid improvement in Canadian manufacturing operating conditions.

Read: Manufacturing business conditions deteriorate (April RBC PMI)

The RBC PMI found manufacturing output increased for the first time in three months during May. This solid rise in production levels was supported by a much faster expansion of new orders, which also contributed towards the first increase in backlogs of work for eight months.

Specifically, firms generally reported greater client demand and new contract wins, as well an increase in new export order volumes. Overall, the rate of total new order growth accelerated sharply since April.

The solid rise in incoming new work contributed to an increase in production during May, which encouraged firms to hire additional staff. Approximately 22% of firms brought people on board, causing the rate of job creation to strengthen to a nine-month high.

Also, input costs rose modestly in May on the price front, with the rate of inflation little-changed from April’s nine-month low.

“Following the relatively slow pace of expansion recorded in March and April, the Canadian manufacturing sector perked up considerably in May, thanks to renewed vitality in new orders and job creation,” says Craig Wright, senior vice-president and Chief Economist, RBC. “As we navigate through the remainder of 2013, we expect the sector’s performance to improve further, boosting Canadian growth.”

Read: Great Lakes economy rebounding

Meanwhile, stocks of purchases were depleted further, albeit at the weakest pace in the current seven-month sequence of contraction. A number of companies cited a preference for leaner inventories in the latest survey period.

Suppliers’ delivery times also lengthened in May, partly reflecting raw material shortages at some vendors. However, the latest increase in lead times was only modest, with the corresponding index unchanged from April’s joint-survey record high.

Manufacturers reported higher input costs over the month, with raw materials including wood and metals commonly recorded as having increased in price.

However, the rate of inflation was only modest and much weaker than the series average. Panelists passed on greater costs to clients by raising their output charges, but the increase was nonetheless the weakest since last July.

Staff

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