Canada: Manufacturing sector faces challenges amidst rising costs
The S&P Global Canada Manufacturing Purchasing Managers’ Index (PMI) fell to 49.4 in April from March’s 49.8. As a result, the index moved further below the 50.0 no-change threshold, and signaled a faster deterioration in manufacturing sector operating conditions compared to the previous month.
April’s decline in the Manufacturing PMI was primarily due to falling output volumes and new orders, which have been decreasing for nine and fourteen months, respectively. The decline in new orders was attributed to high prices and soft market demand, alongside weak global demand affecting new export orders. This situation led manufacturers to continue their preference for utilizing existing inventories over making new purchases, notwithstanding a slight increase in employment to manage workloads effectively.
Input cost inflation in April was the highest since last November, amid stock shortages and logistical challenges. This fed through to higher output prices. Meanwhile, business sentiment improved to a three-month high, driven by expectations of rising output and sales volumes over the next 12 months, although concerns about high interest rates dampening market activity lingered.
Paul Smith, economics director at S&P Global Market Intelligence, said:
“Inflation rates are […] frustratingly sticky, with supply-side delays noted as a factor pushing up input costs. However, manufacturers’ pricing power is being limited by market competition and subdued demand. Firms are subsequently looking to the Bank of Canada to ease interest rates soon given elevated borrowing costs remain a key factor weighing on the outlook.”