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Canadian manufacturing industry remains elevated in September: RBC

H.S. Borji
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Canadian manufacturing industry remains elevated in September: RBC

Canada’s manufacturing industry remained elevated in September, although the pace of growth slowed from August’s nine month high, a sign Canadian factories were still benefitting from a stronger US economy.

The Royal Bank of Canada’s gauge of Canadian manufacturing activity declined in September to 53.5 from 54.8. A reading above 50 is a general sign of growth in manufacturing activity, whereas a reading below that level denotes contraction.

Canada’s manufacturing industry has been at or above the 50 level that separates expansion from contraction since April 2013.

RBC is Canada’s largest commercial bank by market capitalization and second largest by total assets. Its monthly PMI survey is based on primary consultations with 400 industrial companies.

“A solid rebound in Canada’s manufacturing sector continued at the end of the third quarter, despite a slight loss of momentum since August,” said Cheryl Paradowski, president and CEO of the Supply Chain Management Association.

“Improving business conditions helped sustain manufacturing jobs growth, as firms looked to build additional capacity amid a more favourable demand environment.

Stagnating export sales were a notable setback in September, but an ongoing recovery in U.S. economic conditions should help boost the Canadian manufacturing sector during the final quarter of 2014.”

September marked the seventeenth successive month of expansion for Canada’s manufacturing industry. Overall business conditions continued to improve at the end of the third quarter, reflecting stronger levels of output and new orders. In response, manufacturers increased their payrolls for the seventh consecutive month. The pace of hiring eased slightly from the previous month’s 2014 high, RBC data showed. Backlogs of work increased for the eighth consecutive month, albeit at a slower pace.

Statistics Canada will report on the country’s employment situation next week. Last month the federal statistics agency said Canadian employment declined 11,000 in August, as the unemployment rate steadied at 7 percent. Manufacturing employment tumbled 11,000. Year-on-year, Canadian manufacturing employment declined 29,600, or 1.7 percent.

An inconsistent labour market has been one of the biggest challenges for Canada, due in large part to a waning export sector.

A weaker loonie and an improving US economy helped boost Canadian exports in the second quarter. Total exports advanced 4.2 percent in the April to June period, after declining slightly in the first quarter. Year-on-year, this translated into a gain of 17.8 percent, the most in nearly three years. In response, the Canadian economy grew 3.1 percent annually, beating estimates. Output among goods-producers, which include manufacturers, construction and natural resources companies, increased 0.6 percent, official data showed.

Today’s release suggests the Canadian economy was making progress in the third quarter, as the economy continues to rebound from a disappointing first quarter. Canada’s economy is expected to remain below capacity for the next two years, giving policymakers at the Bank of Canada plenty of scope to keep interest rates low.

The International Monetary Fund boosted Canada’s growth outlook over the summer, and now says the world’s eleventh largest economy will grow 2.3 percent this year, up from 2 percent last year.

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