TORONTO, Oct. 1, 2015 /CNW/ - Canadian manufacturers indicated further deterioration in overall business conditions during September, with output, new business and employment levels all falling since the previous month, according to the RBC PMI for September. Weaker demand conditions resulted in lower input buying and greater efforts to streamline inventories, while backlogs of work were reduced at the fastest pace since April.

Moreover, the latest survey pointed to stagnating export sales, despite support from exchange rate depreciation against the U.S. dollar. At the same time, input prices increased at a robust pace amid widespread reports of rising costs for inputs purchased from abroad, but factory gate charges picked up only slightly over the month.

A monthly survey, conducted in association with Markit, a leading global financial information services company, and the Supply Chain Management Association (SCMA), the RBC PMI offers a comprehensive and early indicator of trends in the Canadian manufacturing sector.

At 48.6 in September, down from 49.4 in August, the seasonally adjusted RBC Canadian Manufacturing PMI registered below the neutral 50.0 threshold for the second month running. Although the index only pointed to a moderate downturn in overall business conditions, the latest reading was the lowest recorded in the five-year survey history.

"Overall conditions in the Canadian manufacturing sector continued to deteriorate in September due to underlying economic conditions, including renewed downward pressure on the price of oil. Weakness was primarily concentrated in Alberta and British Columbia, with the rest of Canada's PMI levels registering above neutral and remaining in expansion territory," said Craig Wright, senior vice-president and chief economist, RBC. "Despite persisting challenges in the oil and gas sector, we expect the strengthening U.S. economy to boost Canadian exports and business conditions over the balance of the year."

The headline RBC PMI reflects changes in output, new orders, employment, inventories and supplier delivery times.

Key findings from the September survey included:

• Production volumes declined for the second month running
• Renewed fall in new business levels
• Survey-record reduction in input buying as manufacturers sought to streamline inventories

September data indicated a decline in production volumes for the second consecutive month. The rate of contraction was moderate, but nonetheless the fastest since March as manufacturers cut back production schedules in response to lower levels of incoming new work. Manufacturers indicated a marginal fall in total new business during September, which ended a three-month period of expansion. Anecdotal evidence cited a combination of weak domestic demand, alongside stagnating export sales. The latest data indicated that new work from abroad was unchanged since August, which contrasted with modest growth during the previous four months.

A lack of pressure on operating capacity and subdued confidence regarding the global economic outlook continued to weigh on manufacturing staffing levels in September. The latest fall in employment was slightly weaker than in August, with survey respondents mainly commenting on the non-replacement of voluntary departures.

Softer demand and efforts to alleviate cost pressures resulted in tighter inventory policies across the manufacturing sector in September. Reflecting this, stocks of finished goods were depleted for the fifteenth successive month and pre-production inventories fell at the steepest pace since the survey began in October 2010. At the same time, purchasing activity decreased for the seventh time in the past eight months, with the rate of decline the steepest seen during the five-year survey history. Despite lower levels of input buying, latest data signalled further deterioration in supplier performance, which some manufacturers linked to international shipping delays in September.

Meanwhile, average cost burdens increased at a strong pace at manufacturing companies, although the rate of inflation eased slightly since August. Survey respondents commented on squeezed pricing power, which led to only a moderate rise in factory gate charges.

Regional highlights include:

• Steep declines in output and new orders were recorded in Alberta and British Columbia…
• …but solid growth patterns were maintained in Ontario
• Manufacturing job creation in Ontario contrasted with subdued employment trends elsewhere
• Strong input cost inflation was recorded across all regions in September

"September was a very tough month for the manufacturing sector in Canada. A renewed decline in the volume of new orders contributed to the sharpest downturn in overall business conditions in the five-year history of the survey" said Cheryl Paradowski, president and chief executive officer, SCMA. "The weaker loonie has helped export sales in recent months, but this appears to have softened in September with signs of a slowdown in demand. There is some good news regionally. Ontario's manufacturing sector has seen sustained growth in production and job creation, which contrasts with the trends we are seeing in other parts of the country."

The report is available at www.rbc.com/newsroom/pmi.

Notes to Editors:

The RBC Canadian Manufacturing PMI™ Report is based on data compiled from monthly replies to questionnaires sent to purchasing executives in over 400 industrial companies. The panel is stratified by company workforce size and by Standard Industrial Classification (SIC) group, based on industry contribution to Canadian GDP.

Survey responses reflect the change, if any, in the current month compared to the previous month based on data collected mid-month. For each of the indicators the 'Report' shows the percentage reporting each response, the net difference between the number of higher/better responses and lower/worse responses, and the 'diffusion' index. This index is the sum of the positive responses plus a half of those responding 'the same'.

Diffusion indexes have the properties of leading indicators and are convenient summary measures showing the prevailing direction of change. An index reading above 50 indicates an overall increase in that variable, below 50 an overall decrease.

The RBC Canadian Manufacturing Purchasing Managers' Index™ (RBC PMI™) is a composite index based on five of the individual indexes with the following weights: New Orders - 0.3, Output - 0.25, Employment - 0.2, Suppliers' Delivery Times - 0.15, Stock of Items Purchased - 0.1, with the Delivery Times Index inverted so that it moves in a comparable direction.

The Purchasing Managers' Index (PMI) survey methodology has developed an outstanding reputation for providing the most up-to-date possible indication of what is really happening in the private sector economy by tracking variables such as sales, employment, inventories and prices. The indices are widely used by businesses, governments and economic analysts in financial institutions to help better understand business conditions and guide corporate and investment strategy. In particular, central banks in many countries (including the European Central Bank) use the data to help make interest rate decisions. PMI surveys are the first indicators of economic conditions published each month and are therefore available well ahead of comparable data produced by government bodies.

Markit does not revise underlying survey data after first publication, but seasonal adjustment factors may be revised from time to time as appropriate which will affect the seasonally adjusted data series. Historical data relating to the underlying (unadjusted) numbers, first published seasonally adjusted series and subsequently revised data are available to subscribers from Markit. Please contact economics@markit.com.

About RBC
Royal Bank of Canada is Canada's largest bank, and one of the largest banks in the world, based on market capitalization. We are one of North America's leading diversified financial services companies, and provide personal and commercial banking, wealth management, insurance, investor services and capital markets products and services on a global basis. We employ approximately 79,000 full- and part-time employees who serve more than 16 million personal, business, public sector and institutional clients through offices in Canada, the U.S. and 38 other countries. For more information, please visit rbc.com.

RBC supports a broad range of community initiatives through donations, sponsorships and employee volunteer activities. In 2014, we contributed more than $111 million to causes worldwide, including donations and community investments of more than $76 million and $35 million in sponsorships.

About Supply Chain Management Association
As the leading and largest association in Canada for supply chain management professionals, the Supply Chain Management Association (SCMA) is the national voice for advancing and promoting the profession. SCMA sets the standard of excellence for professional skills, knowledge and integrity and was the first supply chain association in the world to require that all members adhere to a Code of Ethics.

With nearly 8000 members working across the private and public sectors, SCMA is the principal source of supply chain training, education and professional development in the country. Through its 10 Provincial and Territorial Institutes, SCMA grants the Supply Chain Management Professional (SCMP) designation, the highest achievement in the field and the mark of strategic supply chain leadership.

SCMA was formed in 2013 through the amalgamation of the Purchasing Management Association of Canada and Supply Chain and Logistics Association of Canada. With a combined history of more than 140 years, today the association embraces all aspects of strategic supply chain management, including: purchasing/procurement, strategic sourcing, contract management, materials/inventory management, and logistics and transportation. For more information, please visit scmanational.ca.

About Markit
Markit is a leading global diversified provider of financial information services. We provide products that enhance transparency, reduce risk and improve operational efficiency. Our customers include banks, hedge funds, asset managers, central banks, regulators, auditors, fund administrators and insurance companies. Founded in 2003, we employ approximately 4,000 people in 11 countries. Markit shares are listed on NASDAQ under the symbol MRKT. For more information, please see www.markit.com.

About PMI
Purchasing Managers' Index™ (PMI™) surveys are now available for over 30 countries and also for key regions including the Eurozone. They are the most closely-watched business surveys in the world, favoured by central banks, financial markets and business decision makers for their ability to provide up-to-date, accurate and often unique monthly indicators of economic trends. To learn more go to markit.com/economics.

The intellectual property rights to the RBC Canadian Manufacturing PMI provided herein are owned by or licensed to Markit. Any unauthorised use, including but not limited to copying, distributing, transmitting or otherwise of any data appearing is not permitted without Markit's prior consent. Markit shall not have any liability, duty or obligation for or relating to the content or information ("data") contained herein, any errors, inaccuracies, omissions or delays in the data, or for any actions taken in reliance thereon. In no event shall Markit be liable for any special, incidental, or consequential damages, arising out of the use of the data. Purchasing Managers' Index™ and PMI™ are either registered trade marks of Markit Economics Limited or are licensed to Markit Economics Limited. RBC uses the above marks under licence. Markit is a registered trade mark of Markit Group Limited.

SOURCE Markit

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