Manufacturing industry showed strength in May: RBC

The manufacturing sector in Canada showed greater strength in May than it has for almost a year, according to the latest RBC Canadian Manufacturing Purchasing Managers’ Index (PMI). The PMI, which comprises new orders, employment, output, suppliers’ delivery times and stocks of purchases rose “sharply” in May, reaching 53.2, from 50.1 in April. RBC said that this reading is consistent with a “solid improvement” in operating conditions for Canadian manufacturers.

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The manufacturing Purchasing Managers’ Index rose “sharply” in May, showing the highest growth in eleven months. Output, exports, employment and backlogs all increased, showing strong improvement in manufacturing business conditions, says RBC.

The PMI is compiled monthly in association with Markit, the financial information services company, and the Purchasing Management Association of Canada. The index is intended to give a snapshot of the health of the manufacturing sector.

Manufacturing output increased in May for the first time in three months. The “solid” rise in production, which was the fastest since June, 2012,  was the result of new orders which came at a “much faster” rate than in previous months. The volume of orders for export goods rose in May, also reaching its highest point in eleven months. Improving economic conditions in certain key export markets, especially the United States, are responsible for this increase.

The greater number of orders resulted in the first increase in backlogs of work in eight months, which in turn “encouraged” companies to hire additional staff. Input costs rose only modestly, as inflation was little changed from April’s nine-month low. Companies reported increased purchasing of parts and raw materials (inputs) because of the higher volume of orders. The rate of growth in purchasing activity was “moderate” but the fastest since last October.

Employment in manufacturing rose for the sixteenth consecutive month in May, and May’s increase in job creation was the fastest in nine months. The survey found that approximately 22 per cent of respondents had hired additional staff since April, mainly because of increased new work.

“The Canadian manufacturing sector perked up considerably in May, thanks to renewed vitality in new orders and job creation,” said Craig Wright, senior vice-president and Chief Economist, RBC. “As we navigate through the remainder of 2013, we expect the sector’s performance to improve further, boosting Canadian growth.”

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