A robust expansion in new orders helped underpin another solid improvement in operating conditions across the Canadian manufacturing sector during February. The improving demand environment and a rise in backlogs encouraged firms to add to workforces, while sustained growth in output led to another increase in purchasing activity. However, the latest survey data continued to reveal intense supply chain pressures, with delivery times lengthening markedly. Firms often mentioned that restrictions, implemented to curb the spread of the coronavirus disease 2019 (COVID-19), had often led to material shortages and transportation delays. As a result, manufactures incurred higher costs through supplier surcharges.
The headline seasonally adjusted IHS Markit Canada Manufacturing Purchasing Managers’ Index® (PMI®) registered 54.8 in February, up from 54.4 in January, indicative of a strong improvement in overall operating conditions.
A boost to domestic demand underpinned another solid increase in new orders. That said, foreign demand for Canadian manufactured goods rose only fractionally at the start of the year as pandemic restrictions continued to hinder exports.
Output volumes rose in the latest survey period, although the rate of expansion eased to the softest in the current eight-month sequence of growth. Production schedules were supported by higher new order volumes, although pandemic restrictions weighed slightly on output, according to panellists.
To cater for a sustained rise in production, firms added to their workforces for the eighth month in a row. The overall rate of job creation was solid and accelerated from that seen in January. That said, a further increase in outstanding work added to signs of capacity pressures with firms citing a combination of rising new orders and difficulty obtaining inputs contributed to the accumulation.
Higher backlogs also reflected another marked lengthening in delivery times during February. Firms suggested that transportation bottlenecks and stock shortages led to another deterioration in vendor performance. The degree to which lead times lengthened was among the greatest in the series history (since late-2010).
Eight consecutive months of rising new orders contributed to a further increase in purchasing activity. That said, stocks of inputs grew only fractionally, which firms attributed to material shortages. Meanwhile, post-production inventories were depleted markedly.
On the price front, intense cost pressures persisted with the rate of input price inflation accelerating in February. Higher material (mainly metals) and transportation costs were often mentioned. Firms reported passing on cost burdens to customers, with the rate of output price inflation quickening during the month.
Finally, sentiment regarding production over the next 12 months remained upbeat, with the degree of optimism reaching a fivemonth high. Panellists mentioned hopes of the complete easing of virus-related restrictions following a largely successful vaccine rollout programme.
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