Canadian manufacturing contracts in March

According to S&P Global’s Canada Manufacturing Purchasing Managers’ Index (PMI), Canada’s manufacturing sector reversed course in March, with a downturn in both production and new orders. After accounting for seasonal factors, the PMI registered 48.6, down from 52.4 in February. While it was the first contraction of the year, March’s numbers are the lowest reading recorded by the index since June 2020 and represented a modest deterioration in operating conditions.

According to the report’s panelists, product markets were characterised by uncertainty and purchasing power had been eroded by elevated inflation. Manufacturers also continued to report steeply rising prices. Input costs rose at a strong overall pace, with a wide range of goods and inputs again up in price since the previous month.

“Despite these setbacks, there were some positive news to take from the survey, namely that price pressures continued to fall over the month amid reports of better supply-side stability,” said Paul Smith, Economics Director at S&P Global Market Intelligence. “These are welcome developments given their roles in constraining manufacturing sector performance since the onset of the pandemic in 2020. And despite some residual challenges persisting – cost inflation remains high for instance – firms are growing in confidence, with optimism rising to its strongest in nearly a year and hiring activity being sustained.”

In addition, the report found that firms are expecting production to ramp up in the coming year in anticipation of economic recovery and a more stable demand environment. These factors should support sales and output, the report says, with firms looking to take on additional staff for a fifth successive month.
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