Canadian Manufacturing Activity Drops to Lowest Level in Three Years

Canadian manufacturing activity in August reached its lowest level in over three years, as both output and new orders declined compared to the previous month, according to recent data. The S&P Global Canada manufacturing Purchasing Managers Index fell to 48.0 in August, down from 49.6 in July. This marks the lowest level since June 2020 and indicates a continued contraction in the industry, as the index remains below the threshold of 50 that separates expansion from contraction.

Economics director Paul Smith from S&P Global Market Intelligence commented on the results, stating that the August figures indicate a modest deterioration in operating conditions for the manufacturing sector. Output and new orders both fell at significant rates, prompting companies to reduce purchasing and rely on existing inventories. Manufacturers also expressed concerns about potential demand weakness persisting in the coming months.

August saw the steepest decline in output so far this year, as well as the sharpest decrease in new orders since March. However, while sales weakness predominantly affected the domestic market, there was a modest increase in new export orders for the second consecutive month.

Buying activity has decreased for thirteen consecutive months, with August witnessing the largest decline since March. Manufacturers have shown a preference for using existing stocks, leading to the sharpest reduction in input inventories in over three years.

Staffing levels continued to decrease for the fourth consecutive month, reaching a pace not seen since mid-2020. This suggests ongoing challenges faced by the industry and indicates possible labor market impacts.

Data released by Statistics Canada showed a 0.2% contraction in industry-level gross domestic product (GDP) in June, with early information indicating essentially unchanged GDP in July.

The Bank of Canada is scheduled to meet next week to decide on interest rates. After a brief pause, there were two consecutive increases to its policy rate in June and July, bringing it to a 22-year high of 5%.