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RBC PMI: Strongest improvement in manufacturing conditions since December 2014

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05/02/2016 | 09:30am EDT

TORONTO, May 2, 2016 /CNW/ - April data from the RBC PMI highlighted a sustained recovery in business conditions across the Canadian manufacturing sector, with growth of output, new orders and employment all accelerating since the previous month.

At the same time, manufacturers pointed to the weakest rate of input price inflation so far in 2016, despite rising demand for raw materials and some reports of renewed stock shortages among suppliers. Reduced cost pressures and efforts to stimulate client demand in turn contributed to a decline in factory gate charges for the first time in three months.

A monthly survey, conducted in association with Markit, a leading global financial information services company, and the Supply Chain Management Association (SCMA), the RBC PMI offers a comprehensive and early indicator of trends in the Canadian manufacturing sector.

Adjusted for seasonal influences, the RBC Canadian Manufacturing PMI registered 52.2 in April, up slightly from 51.5 in March and above the neutral 50.0 threshold for the second month running. Although indicative of a moderate improvement in business conditions, the latest reading was the strongest since December 2014. This was mainly driven by a rebound in output, new business and employment growth. Meanwhile, the only negative influence on the headline PMI was a fractional reduction in stocks of purchases during April, which reflected ongoing caution among manufacturers in relation to their inventory management.

"The recent trend in Canadian manufacturing is encouraging with an improvement in output, new orders and employment" said Craig Wright, senior vice-president and chief economist, RBC.  "This pickup in activity has come alongside solid U.S. domestic demand and a more competitive currency which supports export activity."

The headline RBC PMI reflects changes in output, new orders, employment, inventories and supplier delivery times.

Key findings from the April survey included:

  • Sustained rebound in output and new business volumes in April
  • Manufacturing employment rises for the second month running
  • Input cost inflation eases to its lowest so far in 2016

Canadian manufacturers experienced a moderate expansion of production volumes during April, with the latest upturn the fastest since June 2015. Survey respondents cited greater new order levels and, in some cases, renewed efforts to boost operating capacity at their plants.

After a return to growth in March, the latest survey pointed to the fastest improvement in incoming new work for almost a year-and-a-half in April. This partly reflected another increase in new export sales, which manufacturers linked to exchange rate factors and rising demand from U.S. clients. That said, the latest rise in overall new work from abroad was only modest and the softest since November 2015.

Job creation gathered pace across the manufacturing sector in April, as highlighted by the strongest upturn in payroll numbers since December 2014. Input buying also expanded at the fastest pace for almost a year-and-a-half, which contributed to pressures on supply chains and further deterioration in vendor performance. However, manufacturers remained cautious about their inventory holdings in April, with firms reporting slight reductions in both their stocks of inputs and finished goods.

Meanwhile, average cost burdens continued to rise at manufacturing firms in April, but the rate of inflation eased markedly since March to the weakest so far in 2016. While most survey respondents cited elevated imported raw material costs, some firms commented on successful price negotiations following the recent strengthening of the Canadian dollar. In contrast to the trend for input costs, the latest data highlighted a slight reduction in factory gate charges across the manufacturing sector, which was attributed to squeezed pricing power and efforts to stimulate client demand.

Regional highlights include:

  • All monitored regions, except Alberta & B.C., signalled an upturn in manufacturing performance
  • Quebec recorded a marked rebound, with new work rising at the fastest pace since August 2012
  • Ontario continued to outperform in April, but growth momentum has slowed since March

"The manufacturing sector has consolidated its recent return to growth, with new business volumes and employment numbers expanding at the fastest pace for almost a year-and-a-half in April." said Cheryl Farrow, president and chief executive officer, SCMA. "The latest upturn in new work was helped by a recovery in demand from both domestic and export markets, which manufacturers attributed to a general rebound in economic conditions and ongoing growth in sales to U.S. clients.

"April data revealed that Canada's manufacturing recovery has become more regionally balanced, with notably strong momentum recorded in Quebec compared to the previous month. While headwinds from lower business investment continue to impact Alberta & B.C., survey measures of manufacturing performance remain significantly above the lows seen in late-2015."

The report is available at www.rbc.com/newsroom/pmi.

Notes to Editors:

The RBC Canadian Manufacturing PMI™ Report is based on data compiled from monthly replies to questionnaires sent to purchasing executives in over 400 industrial companies. The panel is stratified by company workforce size and by Standard Industrial Classification (SIC) group, based on industry contribution to Canadian GDP.

Survey responses reflect the change, if any, in the current month compared to the previous month based on data collected mid-month. For each of the indicators the 'Report' shows the percentage reporting each response, the net difference between the number of higher/better responses and lower/worse responses, and the 'diffusion' index. This index is the sum of the positive responses plus a half of those responding 'the same'.

Diffusion indexes have the properties of leading indicators and are convenient summary measures showing the prevailing direction of change. An index reading above 50 indicates an overall increase in that variable, below 50 an overall decrease.

The RBC Canadian Manufacturing Purchasing Managers' Index™ (RBC PMI™) is a composite index based on five of the individual indexes with the following weights: New Orders - 0.3, Output - 0.25, Employment - 0.2, Suppliers' Delivery Times - 0.15, Stock of Items Purchased - 0.1, with the Delivery Times Index inverted so that it moves in a comparable direction.

The Purchasing Managers' Index (PMI) survey methodology has developed an outstanding reputation for providing the most up-to-date possible indication of what is really happening in the private sector economy by tracking variables such as sales, employment, inventories and prices. The indices are widely used by businesses, governments and economic analysts in financial institutions to help better understand business conditions and guide corporate and investment strategy. In particular, central banks in many countries (including the European Central Bank) use the data to help make interest rate decisions. PMI surveys are the first indicators of economic conditions published each month and are therefore available well ahead of comparable data produced by government bodies.

Markit does not revise underlying survey data after first publication, but seasonal adjustment factors may be revised from time to time as appropriate which will affect the seasonally adjusted data series. Historical data relating to the underlying (unadjusted) numbers, first published seasonally adjusted series and subsequently revised data are available to subscribers from Markit. Please contact economics@markit.com.

About RBC
Royal Bank of Canada is Canada's largest bank, and one of the largest banks in the world, based on market capitalization. We are one of North America's leading diversified financial services companies, and provide personal and commercial banking, wealth management, insurance, investor services and capital markets products and services on a global basis. We have over 80,000 full- and part-time employees who serve more than 16 million personal, business, public sector and institutional clients through offices in Canada, the U.S. and 37 other countries. For more information, please visit rbc.com.‎

RBC helps communities prosper, supporting a broad range of community initiatives through donations, community investments, sponsorships and employee volunteer activities. In 2015, we contributed more than $121 million to causes around the world.

About Supply Chain Management Association
As the leading and largest association in Canada for supply chain management professionals, the Supply Chain Management Association (SCMA) is the national voice for advancing and promoting the profession. SCMA sets the standard of excellence for professional skills, knowledge and integrity and was the first supply chain association in the world to require that all members adhere to a Code of Ethics.

With nearly 8000 members working across the private and public sectors, SCMA is the principal source of supply chain training, education and professional development in the country. Through its 10 Provincial and Territorial Institutes, SCMA grants the Supply Chain Management Professional (SCMP) designation, the highest achievement in the field and the mark of strategic supply chain leadership.

SCMA was formed in 2013 through the amalgamation of the Purchasing Management Association of Canada and Supply Chain and Logistics Association of Canada. With a combined history of more than 140 years, today the association embraces all aspects of strategic supply chain management, including: purchasing/procurement, strategic sourcing, contract management, materials/inventory management, and logistics and transportation. For more information, please visit SCMA.com.

About Markit
Markit is a leading global diversified provider of financial information services. We provide products that enhance transparency, reduce risk and improve operational efficiency. Our customers include banks, hedge funds, asset managers, central banks, regulators, auditors, fund administrators and insurance companies. Founded in 2003, we employ approximately 4,000 people in 11 countries. Markit shares are listed on NASDAQ under the symbol MRKT. For more information, please see www.markit.com.

About PMI
Purchasing Managers' Index™ (PMI™) surveys are now available for over 30 countries and also for key regions including the Eurozone. They are the most closely-watched business surveys in the world, favoured by central banks, financial markets and business decision makers for their ability to provide up-to-date, accurate and often unique monthly indicators of economic trends. To learn more go to markit.com/economics.

The intellectual property rights to the RBC Canadian Manufacturing PMI provided herein are owned by or licensed to Markit. Any unauthorised use, including but not limited to copying, distributing, transmitting or otherwise of any data appearing is not permitted without Markit's prior consent. Markit shall not have any liability, duty or obligation for or relating to the content or information ("data") contained herein, any errors, inaccuracies, omissions or delays in the data, or for any actions taken in reliance thereon. In no event shall Markit be liable for any special, incidental, or consequential damages, arising out of the use of the data. Purchasing Managers' Index™ and PMI™ are either registered trade marks of Markit Economics Limited or are licensed to Markit Economics Limited. RBC uses the above marks under licence. Markit is a registered trade mark of Markit Group Limited.

SOURCE Markit

© Canada Newswire, source Canada Newswire English

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