Manufacturing index plummets

In January, the Canadian manufacturing sector slowed down and overall business conditions improved at the weakest pace seen since April 2013, finds the RBC Canadian Manufacturing Purchasing Managers’ Index.

At 51 in January (down from 53.9 in December) the seasonally adjusted RBC Canadian Manufacturing PMI signaled only a marginal improvement in overall business conditions at the start of 2015. Moreover, the headline index was at its lowest level for 21 months, largely driven by weaker rates of output and new business growth in January.

“The latest data indicates Canada’s manufacturers started the year with concerns around uncertainty about global growth prospects, financial market volatility and a sharp drop in oil prices,” says Craig Wright, senior vice president and chief economist at RBC.

“As we look ahead, we expect an eventual recovery in oil prices, alongside a strong U.S. economy and a more competitive currency. These factors will support economic growth similar to the 2.5% achieved last year, and the manufacturing sector [will still] offset weakness in the energy sector.”

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Key findings from the January manufacturing survey include:

• output and new business growth both eased sharply;
• manufacturing employment fell for the first time in 12 months; and
• input cost inflation dropped to its lowest since September 2013, despite a weaker exchange rate.

Regarding employment data specifically, Canadian manufacturers signaled a slight reduction in payroll numbers during January, which ended an 11-month period of sustained job creation across the sector. Survey respondents suggested uncertainty towards the business outlook and a lack of pressure on operating capacity had weighed on staff recruitment at the start of the year.

Regional highlights include:

• all regions monitored by the survey recorded weaker output trends than in December;
• Quebec and Alberta & British Columbia saw the most noticeable reductions in employment; and
• input cost pressures moderated in all regions at the start of 2015.

One reason for manufacturing’s poor performance is “there were some reports that weaker demand for investment goods, especially among clients in the oil and gas sector, had a negative influence on […] production and job creation,” says Cheryl Paradowski, president and chief executive officer of the Supply Chain Management Association.

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