Business conditions at Canadian manufacturing companies continued to improve at the end of the year, with output and new orders rising further, according to the RBC Canadian Manufacturing Purchasing Managers’ Index (RBC PMI).

Companies hired additional workers and increased their buying activity in order to meet higher demand. Cost inflation remained relatively weak by historical standards, while factory gate prices increased at the sharpest rate in seven months.

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The seasonally adjusted RBC PMI remained in firm expansion territory at the end of the year, signalling a further improvement in manufacturers’ operating conditions. However, the headline PMI fell from November’s 55.3 to a three-month low of 53.9 in December, suggesting that operating conditions improved at a slightly weaker rate. The average PMI reading for the fourth quarter (54.8) was the joint-best since the third quarter of 2011.

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

Key findings from the December survey include:

  • Production and new order growth maintained, but rates of expansion weakened
  • Rate of job creation was the lowest in six months
  • Purchasing activity increased at strongest rate in over three-and-a-half years

December data signalled a further increase in new business placed with Canadian manufacturing firms. However, the rate of growth eased since November to the weakest in three months. The slowing of new order growth largely reflected an easing in the rate of expansion of new export business. New export orders rose for the third month running, albeit only marginally overall.

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Where companies reported a rise in new export work, they commented on stronger demand from U.S., Mexican and Brazilian markets.

Production growth also slowed in December, but remained above the survey’s average. Much of the rise in output was linked by Canadian manufacturers to increased new order intakes.

With output and new order rising, companies hired additional workers and increased their buying activity. The rate of job creation eased to a six-month low, while input buying rose at the strongest rate since May 2011.

The latest survey data indicated that Canadian manufacturers were cautious about their stock policies in December. Pre- and post-production inventories both declined, but the rates of depletion were only marginal. Meanwhile, backlogs of work fell for the first time since January, signalling spare capacity in the sector.

Following the trend observed throughout most of the survey history, input costs faced by Canadian manufacturers increased in December. The rate of inflation was little-changed from November and relatively weak by historical standards. Companies passed higher input costs on to their clients, resulting in a further rise in factory gate prices.

Finally, vendor performance in Canada’s goods-producing sector deteriorated further in December. The rate at which suppliers’ delivery times lengthened was the weakest in three months.

Regional highlights include:

  • Ontario recorded the strongest increase in manufacturing output
  • Only Quebec experienced a decline in production
  • All regions registered an upturn in export sales in December, except Quebec
  • Alberta & British Columbia experienced the fastest rise in employment

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