Slowest expansion of manufacturing production since December 2016

Manufacturers in Canada reported another loss of momentum at the start of 2019, with output and new business growth easing further from the peaks seen last summer. Export sales remained particularly subdued in January, with this index pointing to a marginal fall in new work from abroad.

On a more positive note, manufacturing companies signalled a robust pace of job creation and slower input cost inflation during the latest survey period.

The headline seasonally adjusted IHS Markit Canada Manufacturing Purchasing Managers’ Index® (PMI®) eased from 53.6 in December to 53.0 in January. Although still above the crucial 50.0 no-change threshold, the latest reading pointed to the weakest improvement in overall business conditions since December 2016.

Mirroring the trend signalled by the headline PMI, the latest survey pointed to the slowest rise in production volumes for 25 months during January. Anecdotal evidence suggested that a general slowdown in client demand had held back output growth at the start of 2019.

January data pointed to only a moderate rise in new work received by manufacturing companies. The rate of new business growth eased for the second month running and was the weakest since October 2016. Moreover, new export orders fell in January, albeit only slightly. Survey respondents noted that ongoing global trade frictions had dampened business confidence and contributed to more cautious spending patterns among clients.

Backlogs of work increased for the fourth month running in January. Manufacturers attributed rising volumes of unfinished work to capacity pressures and, in some cases, longer lead-times from suppliers.

A strong rate of employment growth was maintained across the manufacturing sector in January. Companies reporting a rise in their staffing levels generally cited long-term business expansion plans and hopes of a rebound in demand over the course of 2019.

Latest data signalled an improvement in business confidence regarding the year ahead outlook for production. The degree of positive sentiment was the highest recorded since August 2018. Some manufacturers commented on hopes that global trade conditions would start to improve. Survey respondents also generally commented on positive expectations in relation to demand from US markets.

Meanwhile, input cost inflation moderated to a 17-month low in January. However, factory gate charges increased at a slightly faster pace than in December. Manufacturers widely commented on the need to pass on higher imported raw material costs. Higher steel prices and exchange rate depreciation against the US dollar were frequently reported as a reason for rising cost burdens in January.

Regional data indicated a particularly marked slowdown in output growth across Alberta & British Columbia, driven by an overall decline in new work first the first time since August 2016. Quebec was the strongest performing region overall in January, followed closely by a solid upturn in manufacturing conditions in Ontario.