CAD: Manufacturing recovery sustained in May, but new order growth slows - RBC

Research Team at RBC Capital Markets, suggests that the May data from the RBC PMI highlighted that Canadian manufacturers experienced another modest upturn in overall business conditions in May, which marked three months of sustained improvement.

Key Quotes

“Output growth expanded at its fastest pace for almost one year, but the latest survey pointed to slightly weaker rates of new business and employment growth. There were also signs of pressure on operating margins as input cost inflation accelerated in May, while output charges were broadly unchanged.

At 52.1 in May, the seasonally adjusted RBC Canadian Manufacturing PMI was above the neutral 50.0 mark and only fractionally lower than the 16-month high of 52.2 recorded in April. As a result, the headline index indicated another moderate improvement in business conditions across the manufacturing sector, mainly supported by greater levels of output, new business and employment in May. Moreover, the average PMI reading so far this quarter indicates the strongest growth momentum since Q4 2014.

“The latest data reflects mixed results in the manufacturing sector during May. While production and new orders are up, the fall in export sales raises questions about Canada’s transition to a more export-led expansion.” said Craig Wright, senior vice-president and chief economist, RBC. “Quebec manufacturing was a bright spot and Ontario remains the best performing in terms of export and jobs growth, but B.C. and Alberta continued to decline and the forest fires in Fort McMurray, Alberta are expected to put further pressure on both the manufacturing sector and overall economic indicators in Alberta.”

Key findings from the May survey included:

 Sharpest increase in production volumes since June 2015

 New order growth loses momentum amid slight fall in export sales

 Rate of job creation moderates from 16-month high recorded in April 2016”