Report: Canadian manufacturing industry contracts for fifth consecutive month in September 2023

The Canadian manufacturing industry deteriorated further in September. The seasonally adjusted S&P Global Canada Manufacturing Purchasing Managers’ Index (PMI) fell further below the crucial 50.0 no-change mark in September, registering at 47.5. This was down from 48.0 in August.

It was the fifth successive month that a deterioration in operating conditions has been registered, and the latest PMI number was the lowest since May 2020. The PMI is a composite single-figure indicator of manufacturing performance derived from indicators for new orders, output, employment, suppliers’ delivery times and stocks of purchases.

Commenting on the latest survey results, Paul Smith, Economics director at S&P Global Market Intelligence said, “In line with the global industrial downturn, the Canadian manufacturing sector continued to experience lacklustre performance during September. Output and new orders both fell to steeper degrees amid evidence of slow market demand. Price levels remain a problem for many clients, especially as Canadian manufacturers continued to hike their charges to a solid degree.”

The decline in production was the steepest since August 2022. For sales, it was the worst performance since March. Firms widely commented that market demand was slow and that some clients were waiting for price reductions before committing to new business. Similar factors were reported by panellists to have weighed on international demand. New export orders fell for the first time in three months in September and to the steepest degree since May.

Faced with dwindling workloads, further evidenced by the steepest reduction in backlogs of work for 40 months, manufacturers reduced both their purchasing activity and employment in September. Regarding the latter, staffing numbers have now fallen for five successive months, though the latest rate of contraction was modest. Several firms noted ongoing challenges in recruiting additional staff. For input buying, manufacturers noted an excess of inventory at their plants and signalled a preference for reducing stocks rather than buying in new inputs. Overall, the drop in stocks of purchases was the steepest since June 2020.

The survey showed that despite lower demand, average lead times worsened marginally for the first time in five months. Manufacturers noted staffing shortages at vendors. In some instances, port disruptions led to delivery delays. Suppliers continued to raise prices, although softening market conditions restricted their pricing power. The net impact was the weakest increase in input costs in the current four-month run of inflation. Manufacturers signalled ongoing success in pushing through higher input costs to clients, with output charges rising further in September. The rate of inflation was solid and above that signalled for input prices.

Looking ahead to the coming year, confidence remained positive, improving on August’s seven-month low. There were hopes amongst the survey panel of an improvement in economic conditions, which should support the growth of demand and sales in the next 12 months.