The latest data revealed a continued decline in Canadian manufacturing activity last month, signaling softening market conditions. The S&P Global Canada manufacturing purchasing managers index fell to 47.5 in September, dropping below the 50 threshold that separates expansion from contraction.
Challenging Industrial Climate
According to Paul Smith, economics director at S&P Global Market Intelligence, the underperformance of the Canadian manufacturing sector is consistent with the global industrial downturn. Output and new orders both experienced steeper declines in September, reflecting sluggish market demand. Moreover, price levels remained a concern for many clients, as Canadian manufacturers continued to increase charges substantially.
Impact on Economic Growth
Industry-level gross domestic product (GDP), which measures the production of goods and services across the economy, remained essentially unchanged in July. However, preliminary information suggests a modest growth of 0.1% in August. These figures were released last week by Statistics Canada.
Bank of Canada’s Stance
The Bank of Canada’s upcoming meeting on interest rates, scheduled for October 25, holds increasing significance against the backdrop of recent developments. In September, the central bank maintained its benchmark policy rate at 5% after two consecutive quarter-point increases in June and July. The annual inflation rate saw a second consecutive rise in August, with the consumer price index surging 4%, primarily driven by higher gasoline prices.
Unfavorable Manufacturing Indicators
S&P Global’s report highlighted the sharpest decline in manufacturing production since August 2022, with sales reaching their lowest level since March. Furthermore, new export orders experienced a decline for the first time in three months, dropping at the highest rate since May.
Work Backlogs and Employment
The data also revealed the largest reduction in backlogs of work in over 40 months. Manufacturers responded to the challenging environment by reducing both their purchasing activity and employment levels. Employment numbers have now fallen for five consecutive months, albeit at a modest rate, according to S&P Global.
