TORONTO, July 2, 2015 /CNW/ - The RBC PMI data for June pointed to a modest recovery in business conditions across the Canadian manufacturing sector. Production volumes, new business intakes and employment numbers all picked up compared to May. A number of firms noted that stronger export demand helped drive the upturn in business conditions, as highlighted by the fastest rise in new work from abroad since November 2014.
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.
Adjusted for seasonal influences, the RBC Canadian Manufacturing PMI registered 51.3 in June, up from 49.8 in May and above the neutral 50.0 value for the first time in five months. That said, the headline index pointed to only a marginal pace of improvement and the latest reading was still below the average since the survey began in late-2010 (53.0).
"The RBC PMI returned to positive growth territory during June, reflecting the lift to Canada's manufacturers provided by an improved U.S. economy and a more competitive Canadian dollar," said Craig Wright, senior vice-president and chief economist, RBC. "As we move through the summer months, we expect a trend improvement in the level of activity in the manufacturing sector."
The headline RBC PMI reflects changes in output, new orders, employment, inventories and supplier delivery times.
Key findings from the June survey included:
- Output growth accelerated at its fastest pace so far in 2015
- New business volumes increased for the first time since January
- Strongest upturn in new export sales in seven months
Production levels expanded for the second month running in June, and the latest increase was the fastest since December 2014. Survey respondents noted that stronger client demand and, in some cases, reduced caution in terms of finished goods inventories had contributed to increased production schedules in June.
New order volumes picked up slightly in June, thereby ending a four-month period of continuous reductions. Anecdotal evidence suggested that stronger export sales were the key driver of the overall upturn in new work. Highlighting this, the latest survey pointed to the sharpest rise in new work from abroad for seven months. A number of manufacturers noted that exchange rate depreciation and improving U.S. economic conditions had supported new export order volumes in June.
Despite rising levels of incoming new business, the latest survey pointed to a decline in backlogs of work for the seventh consecutive month. Manufacturers mostly cited a lack of pressure on operating capacity. Nonetheless, payroll numbers picked up slightly in June, which ended a five-month period of sustained job losses across the manufacturing sector. Staff recruitment was linked to rising new order levels and, in some cases, improved confidence regarding business outlook.
Increased production schedules resulted in a modest rebound in input buying by manufacturers. Meanwhile, stocks of purchases were depleted during June, but at a slower pace than in the previous month. Some firms commented on efforts to improve cash flow. However, there were also reports that stronger than expected demand had led to lower pre-production inventories. Meanwhile, suppliers' lead-times lengthened again in June, which marked two years of worsening vendor performance.
Average cost burdens increased at a robust pace in June, which manufacturers linked to rising prices for imported raw materials. However, the overall rate of cost inflation eased to its slowest since January. Factory gate charges also rose in June, but only at a modest pace.
Regional highlights include:
- Most regions recorded an improvement in business conditions, except Alberta and British Columbia
- Alberta and British Columbia recorded slower declines in manufacturing output and new orders compared to May
- New export work increased in Ontario, Quebec and the 'rest of Canada'
- Ontario was the best performing region in terms of job creation, with employment growth the fastest since the series began in late-2010
"Improving export sales and support from exchange rate depreciation helped to drive the fastest improvement in Canadian manufacturing business conditions so far in 2015" said Cheryl Paradowski, president and chief executive officer, SCMA. "Output, new orders and employment levels all rebounded in June, suggesting that manufacturers are starting to experience a turnaround after the declines seen earlier in the year. Reduced spending across the energy sector continued to act as a drag on demand, but the latest survey is an encouraging sign that the manufacturing sector is back in expansion mode. The rebound in overall workloads should boost business confidence within the manufacturing sector during the second half of the 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'.
Diffusion indexes have the properties of leading indicators and are convenient summary measures showing the prevailing direction of change. An index reading above 50 indicates an overall increase in that variable, below 50 an overall decrease.
The RBC Canadian Manufacturing Purchasing Managers' Index™ (RBC PMI™) is a composite index based on five of the individual indexes with the following weights: New Orders - 0.3, Output - 0.25, Employment - 0.2, Suppliers' Delivery Times - 0.15, Stock of Items Purchased - 0.1, with the Delivery Times Index inverted so that it moves in a comparable direction.
The Purchasing Managers' Index (PMI) survey methodology has developed an outstanding reputation for providing the most up-to-date possible indication of what is really happening in the private sector economy by tracking variables such as sales, employment, inventories and prices. The indices are widely used by businesses, governments and economic analysts in financial institutions to help better understand business conditions and guide corporate and investment strategy. In particular, central banks in many countries (including the European Central Bank) use the data to help make interest rate decisions. PMI surveys are the first indicators of economic conditions published each month and are therefore available well ahead of comparable data produced by government bodies.
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About Supply Chain Management Association
As the leading and largest association in Canada for supply chain management professionals, the Supply Chain Management Association (SCMA) is the national voice for advancing and promoting the profession. SCMA sets the standard of excellence for professional skills, knowledge and integrity and was the first supply chain association in the world to require that all members adhere to a Code of Ethics.
With nearly 8000 members working across the private and public sectors, SCMA is the principal source of supply chain training, education and professional development in the country. Through its 10 Provincial and Territorial Institutes, SCMA grants the Supply Chain Management Professional (SCMP) designation, the highest achievement in the field and the mark of strategic supply chain leadership.
SCMA was formed in 2013 through the amalgamation of the Purchasing Management Association of Canada and Supply Chain and Logistics Association of Canada. With a combined history of more than 140 years, today the association embraces all aspects of strategic supply chain management, including: purchasing/procurement, strategic sourcing, contract management, materials/inventory management, and logistics and transportation. For more information, please visit scmanational.ca.
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