By Fergal Smith
Canadian manufacturing activity in August saw improvements in production and new orders, indicating a move towards stabilization. However, a decline in employment and rising cost pressures paint an uncertain outlook for the sector, according to data released on Tuesday.
The S&P Global Canada Manufacturing Purchasing Managers' Index (PMI) rose to 49.5 in August, its highest level since March, up from 47.8 in July. Despite this improvement, it marks the 16th consecutive month that the PMI has remained below the 50.0 mark, indicating contraction in the sector.
Although output and new orders declined at slower rates, with the output index rising to 47.8 from 45.9 in July and the new orders measure increasing to 48.5 from 45.1, the employment index fell to its lowest level this year at 48.8, down from 50.3.
Paul Smith, economics director at S&P Global Market Intelligence, highlighted the uncertainty among firms, with reduced employment and cuts in purchasing activity reflecting this sentiment. Cost pressures also rose, with the input price index reaching its highest level since April 2023 at 55.8.
Concerns about price levels were echoed in the latest data on inflation, as unfavorable exchange rates and higher shipping costs contributed to the increase in input prices. The output price index also rose to 54.0 from 50.9.
The Canadian dollar weakened to near a two-year low at 1.3946 per U.S. dollar, or 71.71 U.S. cents, in August but has since rebounded to about 1.3475.
Analysis:
The August data on Canadian manufacturing activity shows some positive signs of stabilization in the sector, with improvements in production and new orders. However, the decline in employment and rising cost pressures indicate ongoing challenges for firms. The uncertainty reflected in firms' outlook and concerns about price levels highlight the need for cautious optimism in the coming months. For investors, monitoring these trends can provide valuable insights into the health of the Canadian economy and potential investment opportunities.