Canadian Manufacturing Activity: Signs of Improvement

Canadian manufacturing activity showed signs of improvement last month, with softer declines in output and new orders, according to recent data.

Purchasing Managers Index on the Rise

The S&P Global Canada manufacturing purchasing managers index increased to 49.7 in February from 48.3 in the previous month. While the measure has been below the 50 threshold indicating expansion for 10 consecutive months, the latest decline was the slowest during that period.

Optimism for the Future

Economics director Paul Smith from S&P Global Market Intelligence noted that although there was still a decline in activity due to client hesitancy, rates of contraction were minimal compared to previous months. Surveyed manufacturers also expressed optimism about the future, leading to an increase in staffing for the first time in three months.

Challenges Remain

However, production was slightly down for the month and orders experienced a modest decline. Reports indicated subdued client demand and a reluctance to commit to new contracts. Additionally, international sales continued to decline for the sixth consecutive month.

Monthly Purchasing Activity Decline Continues

The latest data displayed a 19th straight month of decreasing purchasing activity, albeit at a modest rate. Despite this trend, some companies still preferred using existing inventories, evident by the decrease in stocks of purchases. S&P Global noted a hesitation among panelists to buy new inputs due to elevated prices, which saw a further increase in February.

Backlogs of Work Decrease, Employment Growth Marginal

Backlogs of work diminished for the 19th consecutive month, yet at the slowest pace in a year. The surplus capacity enabled companies to clear outstanding work. Employment growth, although marginal, was attributed to positive output expectations, according to S&P Global.

Bank of Canada Rates Expected to Hold Steady

Bank of Canada policymakers are expected to maintain interest rates at the current level next week. Economists widely anticipate the policy rate to remain unchanged at 5%, the highest in over two decades, for the fifth consecutive meeting. Annual inflation eased to 2.9% in January, inching closer to the central bank's target range of 1% to 3%. Meanwhile, hiring activity improved, wages stayed elevated, and there were indications of a resurgence in the housing market in recent months.

Economic Recovery and Growth

Canada's economy rebounded in the last quarter with annualized growth reaching 1% following a slight contraction in the previous quarter. The increase in exports offset the weakness in business investment, contributing to the recovery.