IHS Markit Canada Manufacturing PMI

June data signalled another difficult month for the Canadian manufacturing sector, with falling volumes of new work contributing to the sharpest drop in production for three-and-a-half years. Survey respondents commented on more subdued economic conditions in both domestic and export markets, alongside a drag on sales from global trade frictions.

At 49.2 in June, the headline seasonally adjusted IHS Markit Canada Manufacturing Purchasing Managers’ Index (PMI) picked up fractionally from May's 41-month low of 49.1. However, the latest reading was below the crucial 50.0 no-change value for the third month running, which marks the longest period of decline since 2015/16.

A sharper reduction in production was the main factor weighing on the headline PMI in June. The downturn in output accelerated since the previous month and was the fastest since December 2015. Manufacturers generally cited a lack of new work to replace completed orders at their plants. Reflecting this, the latest survey revealed the steepest fall in backlogs of work since data collection began in October 2010.

The lack of pressure on operating capacity across the manufacturing sector largely reflected a sustained deterioration in order books during June. Lower volumes of new work have been recorded in each of the past four months, although the latest decline was only modest and slower than seen in May.

Export sales were unchanged in June, which ended a three-month period of decline. Some manufacturers noted a boost to export sales from the removal of US trade tariffs on steel and aluminium. However, there were also reports that softer underlying demand in US markets and ongoing global trade frictions had held back total new orders from abroad.

In contrast to the reductions signalled for output and incoming new work, latest data pointed to a rise in employment numbers for the second month running. However, the rate of job creation was only marginal. A number of manufacturers suggested that softening client demand had encouraged more cautious staff hiring strategies. Moreover, latest data revealed a drop in business optimism towards the year-ahead outlook, which was partly attributed to concerns that global trade frictions would act as a brake on manufacturing sector performance.