The Canadian manufacturing sector experienced another reduction in output volumes and new business intakes at the end of 2015, with the latest deterioration in overall conditions the sharpest recorded since October 2010, according to the December 2015 RBC Canadian Manufacturing PMI.

Subdued business confidence at the end of the year played a part in lower spending levels and delays to new projects, particularly in the energy sector. Plus, manufacturers responded to the latest fall in new work by lowering their inventories and initiating price discounting strategies.

Meanwhile, payroll numbers decreased for the sixth month running amid a sharp and accelerated fall in work-in-hand across the sector.

“Business conditions in the Canadian manufacturing sector fell at a survey-record pace in December, as weaker domestic demand and ongoing uncertainty in the energy sector continues to take its toll,” says Craig Wright, senior vice-president and chief economist, RBC. “Across Canada, Alberta and British Columbia experienced the sharpest deterioration in conditions, while Ontario continued to be a national bright spot, posting a sustained rise in output production.”

Read: Brace for “potential periodic scares” in 2016: HSBC

But, he adds, “As the U.S. economy strengthens, we expect to see improvements in Canadian manufacturing sector activity levels.”

The details

Adjusted for seasonal influences, the RBC Canadian Manufacturing PMI registered 47.5 in December, down from 48.6 in November. That means it’s sitting below the neutral 50 threshold for the fifth consecutive month (for historical data, click here).

In December, the survey revealed:

  • the sharpest deterioration in business conditions since the survey began in 2010;
  • that the output, new order volumes and employment all declined at faster rates in

December; and

  • that factory gate charges decreased for the first time since August 2013.

On the upside, companies that reported a rise in export sales generally linked that trend to support from the weaker exchange rate, alongside successful efforts to enter new overseas markets. But, survey respondents also noted that falling domestic demand, especially for investment goods, had driven the overall decline in workloads at the end of 2015.

Average prices charged by Canadian manufacturers decreased at a moderate pace in December, which marked the first reduction since August 2013. Anecdotal evidence suggested that strong competition for new work had resulted in renewed price discounting at the end of 2015. At the same time, overall input price inflation eased sharply to its weakest since January, despite continued upward pressure on costs from the weaker exchange rate.

“The Canadian manufacturing sector faced [a] difficult month,” says Cheryl Paradowski, president and chief executive officer for SCMA. “Another slight rebound in export order volumes was the main positive development at the end of 2015. The weaker loonie is supporting manufacturers as they look to enter new export markets, but rising manufacturing sales abroad have not yet been able to offset falling workloads from domestic sources and the energy sector in particular.”

Read: Why the loonie will remain weak in 2016

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