Purchasing Managers' Index™
MARKET SENSITIVE INFORMATION
RBC PMI: slowest improvement in business conditions for three months in June
JULY 4, 2016 – June data suggested that the Canadian manufacturing recovery stepped down a gear at the end of the second quarter, with output, new business and employment growth all easing slightly since May. Moreover, new export orders were virtually unchanged in June, which contrasted with the solid contribution to growth seen earlier in 2016. At the same time, stocks of finished goods dropped at a survey-record pace in June, with manufacturers noting that subdued client demand and uncertainty about the economic outlook had encouraged tighter inventory management at their plants.
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 indication of trends in the Canadian manufacturing sector.
Adjusted for seasonal influences, the RBC Canadian Manufacturing PMI registered 51.8 in June, down from 52.1 in May. Although the index posted above the 50.0 no-change value for the fourth month running, the latest reading signalled only a marginal upturn in overall business conditions and the weakest pace of improvement since March.
“While the slowdown in the growth of manufacturing during June is disappointing, Canadian manufacturers did indicate a marginal upturn in new business volumes,” said Craig Wright, senior vice-president and chief economist, RBC. “Currency weakness and stronger U.S. demand should drive further exports, however growing economic uncertainly means that the roller coaster we’ve experienced recently in the Canadian export market will likely continue,” added Wright.
The headline RBC PMI reflects changes in output, new orders, employment, inventories and supplier delivery times.
Key findings from the June survey included:
- Output growth eases from May’s 11-month high
- Marginal increase in new business volumes
- Stocks of finished goods fall at fastest pace since the survey began in October 2010
A slowdown in output growth from May’s 11-month high was one of the key factors weighing on the headline PMI during June. The latest expansion of production volumes was the weakest since March, which manufacturers linked to softer client demand and efforts to reduce finished goods inventories at their plants. Post-production stocks have now fallen in each month since April and the latest reduction was the steepest for over five-and-a-half years.
Canadian manufacturers indicated a marginal upturn in overall new business volumes in June. The latest survey suggested that domestic sales were a key driver of growth, as new export work was broadly unchanged over the month. Higher levels of business underpinned further staff recruitment across the manufacturing sector in June, which extended the current period of net job creation to four months. However, the pace of employment growth eased slightly since May amid reports of heightened uncertainty about the business outlook and a lack of pressure on operating capacity.
Survey respondents pointed to ongoing supply chain pressures in June, with average lead-times from vendors lengthening to the greatest degree since December 2014. This was linked to unusually low stocks at suppliers and a marginal upturn in input buying among manufacturers. Despite a rise in purchasing activity, latest data signalled that pre-production inventories were broadly unchanged over the month, which firms mainly linked to cautious stock policies at their plants.
June data signalled a return to rising factory gate charges among Canadian manufacturers, although the rate of inflation was only marginal. A number of firms noted that subdued underlying demand had acted as a brake on output charge inflation and placed pressure on margins. Moreover, higher steel and fuel prices contributed to a robust rise in average cost burdens in June. The latest increase in overall input prices was the fastest recorded since March.
Regional highlights include:
- Manufacturing business conditions improve in all regions except Alberta & B.C.
- Quebec and ‘Rest of Canada’ record fastest rises in manufacturing output during June
- Ontario experiences slowest pace of production growth so far in 2016
“Canada’s manufacturing sector continued to expand in June, as the latest PMI survey points to a sustained recovery in output and staff hiring through the second quarter of 2016.” said Cheryl Farrow, president and chief executive officer, SCMA. “However, manufacturers have seen export growth slow in recent months, reflecting risk aversion and heightened economic uncertainty across the global economy. Worries about the business outlook have already weighed on inventory management for manufacturers, with stocks of finished goods falling at the fastest pace for over five-and-a-half years in June.”
The report is available at www.rbc.com/newsroom/pmi.
RBC’s successful five-year sponsorship of the PMI comes to an end with the publication of this release. RBC recognizes the Markit PMI report as a valuable and important source of manufacturing data and information in Canada. Markit produces PMI surveys in more than 30 nations globally.
For further information, please contact:
Royal Bank of Canada
Supply Chain Management Association
Amanda Cormier, Director, Public Affairs & Communications
Joanna Vickers, Corporate Communications
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.
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.
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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.
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.
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.