Manufacturing sector hits 4-month low

The manufacturing sector declined in output levels for the first time in four months. Adjusted for seasonal influences, the RBC Canadian Manufacturing PMI registered 49.4 in August, down from 50.8 in July and the lowest reading since May. Moreover, the headline index was below the neutral 50.0 mark for the first time in three months.

Meanwhile, payroll numbers decreased at the joint-fastest rate since the survey began in October 2010. Also, the weaker exchange rate contributed to a modest rise in new export work. However, manufacturers reported a marked increase in imported raw material costs, which contributed to the fastest rate of price inflation in just over a year and placed additional pressure on operating margins.

“This month’s data suggests that several sectors within the Canadian manufacturing industry continue to face headwinds, with the PMI registering at a four-month low,” says Craig Wright, senior vice-president and chief economist, RBC. “We remain confident that, as the U.S. economy continues to strengthen and the Canadian dollar remains competitive, there will be an uptick in exports for Canadian manufacturers, offsetting some of the momentum lost in August.”

Here are some additional findings.

• Canadian manufacturers signaled a marginal reduction in output levels at their plants in August, which ended a three-month period of expansion.
• New business volumes continued to rise, supported by another modest upturn in export sales.
• Anecdotal evidence suggests that sharp declines in capital spending among energy sector clients dampened demand during August, especially for manufacturers of investment goods.
• Ongoing pressures on operating margins, alongside expectations of subdued client spending patterns, contributed to a decline in manufacturing employment for the seventh time in the past eight months.
• Manufacturers also lowered their purchasing activity in August, reflecting reduced production requirements and efforts to rein in stocks of inputs.
• Average cost burdens increased across the manufacturing sector, which extended the current period of rising input prices to 37 months.

Staff

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