Canadian manufacturing sector showing “modest improvement”: RBC

Canada’s manufacturing industry showed “modest improvement” last month, according to the RBC Canadian purchasing managers index, released on March 1.

While both new orders and output increased in February, the rate of growth was the second-weakest in the index’s 17 months of data collection, the bank said. The rate of input price inflation rose to a six-month high, particularly raw materials, resulting in higher costs to the consumer.

“While we observed a modest improvement from January’s sharp slowing, the Canadian manufacturing sector’s growth rate remained tepid in February,” said Craig Wright, senior vice-president and chief economist, RBC. “On a more promising note, the slight uptick in manufacturing employment is in line with our view that Canada’s broader labor market will shake off its recent slump and start to ramp up again in the months ahead.”

The report also noted that manufacturers hired staff in February, compared with January’s layoffs, with Alberta and British Columbia posting the fastest employment growth; and that manufacturing conditions improved everywhere but Quebec last month, with Ontario showing the biggest increase in incoming new work.

“While the improvement in the RBC PMI in February suggested that conditions in the Canadian manufacturing sector continue to improve, the index remains well below its level in December 2011,” said economist Nathan Janzen, of RBC Economics. “This result suggested a more modest pace of growth early in 2012 than in late 2011. We think that signs of improvement in the U.S. economy, particularly the ongoing recovery in U.S. auto production and sales, bodes well for manufacturing activity as a whole to improve at a stronger pace going forward; however, a second consecutive contraction in new export orders in February served as a reminder that the external environment, notably the ongoing government debt crisis in Europe, remains a significant risk to growth in the Canadian economy.”