Recent data shows that Canadian manufacturing activity has improved, with the S&P Global Canada Manufacturing Purchasing Managers' Index (PMI) increasing to 50.4 in September from 49.5 in August. This marks the first time in 17 months that the index has moved above the 50.0 mark, indicating expansion in the sector.
Canadian manufacturing, PMI, economic outlook, market demand, borrowing costs, employment, new orders, global demand, interest rates, inflation
By Fergal Smith
TORONTO (Multibagger) - Canadian manufacturing activity strengthened for the first time in 17 months in September as market demand improved and lower borrowing costs bolstered confidence in the economic outlook, data showed on Tuesday.
The S&P Global Canada Manufacturing Purchasing Managers' Index (PMI) increased to 50.4 in September from 49.5 in August, its first move above the 50.0 no-change mark since April 2023. A reading above 50 indicates expansion in the sector.
"The latest PMI data provided some encouraging signs for the health of the manufacturing economy, with new orders, employment and confidence in the outlook all improving since August," Paul Smith, economics director at S&P Global Market Intelligence, said in a statement.
The new orders index rose to 50.3 from 48.5 in August, helped by an uplift in market demand and despite continued weakness in new export orders, while the measure of future output was at 61.2, up from 60.0.
"Global demand remains subdued, in part linked to geopolitical uncertainties and this continues to bear down on production and buying activity," Smith said.
"Firms are therefore looking towards the forthcoming U.S. elections as an opportunity to see some much-needed stability, whilst also noting that falling interest rates should help to stimulate growth in the year ahead."
Investors expect the Bank of Canada to cut its benchmark interest rate two percentage points further to 2.25% by the end of 2025. The central bank has already lowered borrowing costs by three-quarters of a percentage point since June.
One potential barrier to rate cuts would be a resurgence in inflation.
The input price index climbed to 56.4, its highest since April 2023 and up from 55.8 in August, but a decline in the measure of output prices signaled that manufacturers had limited pricing power to pass on higher input costs to clients.
Analysis:
The recent increase in Canadian manufacturing activity is a positive sign for the economy, with improvements in new orders, employment, and confidence in the outlook. This could lead to potential growth in the sector and stimulate overall economic growth. However, global demand remains subdued due to geopolitical uncertainties, which could impact production and buying activity. Investors are anticipating further interest rate cuts by the Bank of Canada, which could help stimulate growth but may face challenges due to inflation concerns.